By now you’ve heard political, economic and investment pundits offer their opinions about why Britain’s vote to leave the European Union was a terrible thing for investors.

No doubt you’ve heard that…

  • EU membership promotes the free movement of goods, services, labor and capital. Leaving this bloc will reduce trade between the EU and the U.K.
  • Citizens of Scotland and Northern Ireland voted to stay in the union. That gives fresh energy to separatist groups in these countries, potentially undermining the cohesion of the U.K.
  • Many citizens of the Netherlands, France, Spain, Portugal and Italy are also unhappy with the EU and for the same reasons as the Brits. The EU’s long-term viability is now in question.
  • Europe’s banks are also at risk. They need political stability, economic growth, strong currencies and consumer confidence. All of these have been damaged.

None of these things are untrue. However, this list doesn’t include any of the positive aspects of the Brexit vote.

“The positives?” a friend asked the other day. “What could be positive about it?”

See what I mean? Consider the other side:

  • The U.K. accounts for a mere 2.4% of world GDP. Even a full-blown recession there would create little more than a rounding error in global growth.
  • Trade between Britain and the EU was already at a record low. In 1999, the EU was responsible for 55% of Britain’s exports. By 2014, it accounted for less than 45%. Meanwhile, exports of goods and services to countries outside of Europe have been on the rise.
  • The drop in the pound makes British exports more competitive (not less) since goods and services will be priced more competitively in foreign markets.
  • Given that other EU states are unhappy with the EU’s sclerotic bureaucracy and suffocating regulation, there is a strong possibility that the trade organization will begin to reform itself. (If it doesn’t, it almost certainly will lose more members.) That’s certainly a positive.
  • The market decline here and abroad was orderly, proving that there is still plenty of liquidity to absorb heavy volume on the sell side.
  • By Wednesday’s close, the U.K.’s FTSE 100 – that country’s equivalent of our S&P 500 – was already above its close prior to the vote. Talk about a quick recovery.
  • The same thing happened with other markets. Japan’s Nikkei dropped 8% on the Brexit vote results but recovered more than half of that within four days. The S&P 500 sold off 5% but then rebounded 3% in four days.

So, yes, there are negative aspects of Britain’s decision to leave. But plenty of positives too.

Trade between Britain and the EU will not come to a screeching halt.

[ad#Google Adsense 336×280-IA]Europeans – and the rest of the world – still want Britain’s engines, pumps, vehicles, oil, electronic equipment, aircraft, medical equipment, organic chemicals and plastics, all leading exports.

What is most surprising about the immediate aftermath was world markets’ reaction.

After all, the referendum was announced way back in February.

Polls consistently showed that the vote was going to be close. Yet when the final votes were tallied, financial markets acted as if the outcome were totally unexpected.

Investors have already had months to consider the potential ramifications. So it’s no surprise that markets here and abroad have staged an impressive recovery.

Let’s remember, too, that Britain’s actual disengagement from the EU is more than two years away – and probably closer to 2 1/2. For all we know, Europe and Britain could be in the midst of a robust recovery by then.

There is still uncertainty surrounding this event, of course, and there is bound to be more volatility ahead.

But markets are far more resilient than most people recognize. And in an era of low inflation, rock-bottom interest rates, ultra-cheap energy and ingenious innovation, you don’t want to be out of stocks.

Good investing,

Alex

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Source: Investment U