Contrary to many polls and the bookmakers predicting the UK to remain in the EU, but the UK public have voted to leave the EU. Truthfully, many are surprised by the outcome.
We are likely to see volatility in the currency markets as well as the stock markets for the next few days. At the time of writing, Sterling had not fallen as predicted. Prior to the result announcement, the pound was trading at approximately €1.30 this morning, but as the result was announced, the pound dropped to €1.23, and continues to range between €1.22 and €1.24 against the Euro.
To compound the Referendum vote result further, our Prime Minster, Mr. David Cameron, decided to resign at 8.30 am, which will add further concerns to both currency and equity markets. Even through Mr. Cameron has stated that he would remain for three months, his decision could render a General Election.
The Bank of England were swift to reassure markets that liquidity will be provided where necessary. The Bank of England could increase interest rates and boost the value of the pound and will help the expected inflation target of 2%. On the flip side, the Bank of England could cut rates and reinstate Quantitive Easing to assist Sterling.
Gold became a safe haven this morning, and increased by a value of 8%. Nevertheless, the FTSE 100 has not reacted as badly as first thought. From a value of 6365.49 yesterday,the FTSE 100 has fallen to a value of 6065.08, down 4.31%. When the Referendum result was announced, the markets in the Far East and Asia were still trading. In Japan, trading on the Nikkei 225 was suspended after an index fall of 8.3%. Other markets such as Hong Kong fell by 5%. Such falls are an “initial” shock reaction to the vote and we expect such uncertainty to settle within the next week on the markets.
Impact on Brits in Portugal
Taxation – The Tax Treaty between the UK and Portugal executed in 1969 is likely to remain. Our opinion is that one should not have concerns in this area, but keep "an eye" on developments as they occur.
Residency – The UK may remain a member of the European Economic Area (EEA). In this case, the existing free movement in Europe would remain. If this does not happen, a special arrangement between the UK and the EU could be established. In the event of no arrangement, UK citizens would have to abide by EU rules that a non EEA immigrant would face, which would be the worst case scenario.
Pensions – UK State pensions will remain unaffected. Those of you that have a QROP pension or similar, attention will be needed. Our advice would be to “repatriate” your QROP back to the UK. Due to the referendum vote, reliance upon jurisdictions such as Malta and Gibraltar could be detrimental in tax terms. Since the UK has introduced pension reforms, which have liberated the withdrawal of pension benefits, UK pensions would provide the same if not more flexibility than that offered by a QROP. In terms of taxation, the “repatriation” of your pension fund will best place you to take advantage of either the UK tax system or Portugal’s advantageous Category ‘H’ Tax Regime.
Investments – To use a cliché, this referendum result will present many buying opportunities for investors. If you are thinking of investing capital into equity markets, probably now is a good time to do so. However, we cannot stress the importance of using a proactive investment management service as opposed to selecting investment funds. Unlike our peers in Portugal, we can offer this service in conjunction with Rathbones of London. Investment opportunities over the next few years will be hard to identify, which emphasises the importance to engage an investment manager to identify these opportunities as and when they arise. In addition, this service is best positioned to act swiftly. Many investment funds cannot do this as they hold large positions in investment assets and are therefore too cumbersome to liquidate quickly to take advantageof these opportunities as they arise.
Moving Forward
The referendum result does not mean that an exit from the EU will happen immediately. It raises many questions and it anticipated that it will take two years to resolve. To answer many of these questions, it is worth clicking on the following link and read this article giving an insight into the various permutations: http://www.politico.eu/article/how-britain-uk-would-leave-the-eu-brexit-referendum
We are now moving into a new chapter of political and economic times. What the referendum result holds for the future of EU, no one can say. What we do know is that the EU will be poorer without the UK and the continued problems the EU faces, such as Greece, will remain unresolved. This coupled with many of its members in the EU still recovering from the recent recessionary period could place the Eurozone in a fragile position with much uncertainty and financial instability.
Rathbones have issued this morning their Investment Update which offers an opinion into the consequences of the UK vote results, including its impact on the UK economy, banking, and future affect on global markets. If you would like a copy of this report, please contact us.
In the meantime, if you would like to offer your comments or have any concerns, please contact us where we will endeavour to help and allay such fears.
Private Fund Management
T: +351 289392484/289392485
E: info@privatefund.management
W: www.privatefund.management
Address: Avenida Jose Dos Santos Farias, Loja 1, Lote 83/84, Almancil,8135-167. Portugal.
