How Brexit May Impact the Market and Your Clients

Retirement plan advisers will need to help DC plan sponsors communicate to participants and help DB plan sponsors review their investment strategies.

By Rebecca Moore | June 24, 2016
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On June 24, many Americans woke up to the surprising result that voters in the United Kingdom decided the country should leave the European Union—a move dubbed “Brexit.”

Markets around the globe fell, including U.S. markets.

Tim Barron, chief investment officer with Segal Rogerscasey, who is based in Chicago, tells PLANSPONSOR world events like this affect U.S. markets because it creates greater uncertainty among investors, and uncertainty usually creates negative volatility in the markets.

Investors might turn to cash and Treasury investments, feeling that if the European Union (EU) melts down, this provides safety. He explains that dollar strengthening can be bad for the economy because goods and services that are sold overseas will be more expensive. “This event is a good example of how global economies are interconnected,” Barron says.

News reports say the divorce of the UK from the EU could take up to two years. Barron says it’s hard to make a market call for what happens over the next two years. For the UK itself, there will end up being standalone traded agreements with countries deeply engaged and involved in the EU, Barron speculates. “The precedent is for the UK to have a vibrant relationship with the EU,” he says.

But, there are other unknowns that may create additional market volatility. According to Barron, there are other countries in the Eurozone that do not view the EU favorably. “What about Spain and the Netherlands?” he queries. “It’s not so much the two year period of figuring out trade agreements and other details that will affect the market, but it’s the fact there could be other substantive changes in the makeup of the EU.”

Another consideration is the response of the EU itself. “Brussels cannot be happy with the UK. How will they deal with other nations that have concerns? They need to have a policy response,” Barron says.

NEXT: Implications for retirement plan investors