For months, political and financial analysts on both sides of the Atlantic Ocean had overwhelmingly considered it highly unlikely that British voters would choose to leave the European Union. And yet, as we learned near midnight last night, that’s exactly what the voters did.
The media, as usual, is making a big deal about this news. But from an investment perspective, is it really worthy of all this attention? After all, the United Kingdom represents only 4% of the world’s Gross Domestic Product (it ranks a distant fifth behind the United States, China, Japan, and Germany), according to the World Bank. The U.S. generates a whopping 22% of the world’s GDP – more than the combined GDP of all 28 members of the EU, only four of whom are in the global top 10!
The British are also certain to experience disruption. British Prime Minister David Cameron already resigned (others are expected, too), which will force the British to select new leaders. Then they must negotiate new trade agreements with more than one hundred countries, including new agreements with its former EU partners. All that will take years.
In order to combat the large economic powerhouses like the United States, Japan, India, and China, many of the European nations decided it was best to band together as states in hopes to achieve their own economic powerhouses.
The global financial marketplace is incredibly competitive. In theory, this act of coming together would work, however, the vast differences in culture and business practices made this agreement futile. The hope to emulate the American model of several states with similar laws and regulations were set to create another economic powerhouse.
But the EU’s founders failed to resolve one important element: Although they unified commercial policies across the continent, they failed to resolve political and social disagreements. This led the larger economic forces like Britain and Germany to take on the debts of other countries like Greece and Spain.
The economies of countries like Greece, Spain, Italy, and Portugal have not only proved to be disastrous to the EU, their politicians have also maintained their stubborn behavior. Their excessive spending and accumulation of massive debt continuously forced Britain and Germany to come to the rescue.
The vast majority of the world’s analysts and pundits – and, for that matter, Las Vegas bookmakers – failed to appreciate the depth of British frustration. On Thursday, convinced that the proposal to exit the EU would be defeated, stock markets around the world rose dramatically.
But as soon as it became clear that voters defied predictions, global financial markets began to fall. Currency markets are gyrating; prices for gold, bitcoin and government bonds are jumping.
It seems no one truly understands what Brexit means for the average consumer. However, there are two facts we do know: uncertainty means volatility. And volatility can create opportunity.
Alfatrade is monitoring the situation closely for your benefit. The forex market is sure to fluctuate in the coming months and they will have up-to-date statistics that will help you garner the best results.
Investors are comfortable with good news and bad news. Good news means prices are on the rise. Some bad news is okay too because prices are going to fall. The perfect time to buy is during the bad times. This is because prices tend to equalize with time. Therefore, when an economic difficulty presents itself, it is a good time for investors.
The fruition of Brexit presents us with an unparalleled possibility for prosperity. However, in the short-term you should expect volatility. In the long run, you should expect profit.