Market Wrap 01-07-2016

If you ever need to see the effect of uncertainty has on the market, you got it this week. Brexit (UK exiting the Euro) saw markets around the world fall 3% on the day of the vote, those countries like Spain and Italy which will be directly affected fell 12%. The problem is that no one really knows how different countries will be affected.

Back here in Australia our exports to the UK are around 5% of total exports, as such it is hard to see how this event will affect Australian companies to the degree it was implied by the market movements. I note however that most of the losses have now been recovered and we are trading sideways again which has been the case since August last year.

Brexit has however caused negative yield bonds, these are bonds which the holder of will lose money on over there term. This is due to the high level of uncertainty over Brexit and again simply indicates how some investors are irrational when it comes to investing.

The big issue next week is the election, promises have been made and come Monday a new government will be formed. The question is will it be a government who can drive the economy or another 3-4 years of a stalled economy. I expect that this will play a large part in our market next week.