What we do know with some certainty - and which has been the cause of much opprobrium – is that should the UK leave the bloc it will be outside of the single market and customs union, and thus in trade limbo – negotiating an exit is one thing, negotiating a trade deal another, and a period under World Trade Organisation should not be ruled out (or feared, for that matter - many countries already trade successfully under its jurisdiction).
Yet deal or no deal, all companies engaging in cross-border transactions will have their work cut out to adjust to what is likely to amount to significant upheaval. Some industries face bigger potential problems than others, especially those that have for many years been bound by EU regulations – airlines, financial services, food and pharmaceuticals spring immediately to mind, but few industries are untouched by the hand of the EU. Indeed, while there has been much talk of tariffs, I would suggest the bigger concern should be how UK companies cope with the tangled web of compliance that in many instances allows them to trade in the EU in the first place.
However, I am confident that trade will not grind to a halt; solutions will be found, and some of these will present new opportunities to certain companies. But it is impossible to predict right now exactly what form these solutions will take, whether transitional arrangements will be required and whether certain companies will find themselves wrenched from the UK as the price of continuing to do business in the EU. We will be keeping a close eye on the progress of talks for any clues pointing to the financial implications, but to do so right now would be mere speculation.
Besides which, those who have been paying attention to our broader views on managing such risks will already be well positioned to cope with any outcome. We regularly advocate the principles of asset allocation and diversification for precisely this reason – if Brexit means a particular sector suffers disproportionately, or the broader UK or European indices take a hit, it will matter very little in the context of long-term returns from a well-constructed portfolio. Brexit should not in itself be something that investors lose and sleep over.
