Reflections on Brexit and the future of the European Union

The resounding victory of the ‘Leave’ campaign following last week’s UK referendum revealed a high level of antipathy towards European integration and immigration policy. In this post, Evidente briefly traces the antecedents of the EU and tentatively maps out various future scenarios surrounding European integration. On balance, the chance of EU disintegration has increased but remains low. The decision of Great Britain to leave the EU is unprecedented (for any country) so the process of investor learning surrounding the future implications for the EU could well be slow and drawn out. During this time, Evidente expects risk assets to trade on lower multiples, reflecting three developments: a reduction in expected dividend growth, a lift in uncertainty around future growth, and a higher risk premium. For investors with the luxury of a long investment horizon, Brexit ought to offer an invaluable buying opportunity. For most other institutional investors at the coal face of shorter term performance pressures, Evidente expects there will be better buying opportunities in due course. (VIEW LINK)