Attention now turns to assessing the risks

15:18 AEST Friday, 24 June 2016

Attention now turns to assessing the risks

By Ric Spooner (Chief Market Analyst, CMC Markets)

Blindsided by the outcome of Britain’s EU referendum, markets must now turn their attention to the task of pricing the risks or opportunities that will flow from this historic decision.

Today’s market moves are in part about thin liquidity in currency markets and about markets getting it wrong by removing risk premium in the run up to the event. Uncertainty and the inclination to take a safety first approach naturally drives markets in unprecedented circumstances like these. However, over coming days; long term investors will be looking to make a hard headed assessment about whether value is being created, especially for many Australian stocks which are removed from many of the immediate economic implications of Brexit.

It would not surprise to see world central banks assuring markets that they stand ready to support liquidity in order to minimise any short term disruption to the operation of credit markets.

Over coming weeks, investors will be looking for more clarity about the mechanics of how the UK will exit the EU and how long this may take.

Markets are also going to be attuned to any tangible evidence that Brexit is putting pressure on any further splits from Europe. On the day, the Euro has rallied strongly against the Pound, suggesting that markets are pricing more risk for the UK than Europe.

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