Since Friday last week (24 June), global financial markets have been highly volatile following the UK’s decision to leave the European Union (EU). Donna Nicolof, BNZ’s Head of Wealth and Private Bank, answers some of your questions.
What has happened?
After months of bitter campaigning, the people of Britain have gone to the polls, and made their decision to exit the European Union (EU) – dubbed ‘Brexit’. While many had expected the result to be close, the ‘Leave’ outcome came as a bit of a surprise for financial markets, which had been expecting the ‘Remain’ vote to win out on the day.
As is often the case, financial markets have reacted negatively to the unexpected news. Global share markets have fallen sharply, and currency markets are highly volatile. However, in amongst this all, bond markets have risen as investors tend to favour these ‘safe-haven’ assets during times of market turmoil.
Financial markets simply don’t like uncertainty, which is why we’ve seen such a sharp reaction. As a result, we are likely to see volatility continue until there’s greater clarity on what Brexit actually means.
What’s going to happen next?
There is a long journey ahead as the UK and EU work through the complicated next steps. The impact of the Brexit vote is still in its early days – with the UK government still to ratify it. In the short term however, the focus will be on understanding the impacts of the decision for the UK and, more broadly, the EU.
How will this impact the BNZ KiwiSaver Scheme funds?
Members should expect to see falls in value given the declines we’re seeing in share markets in particular. The BNZ KiwiSaver Scheme funds which invest mainly in ‘higher-risk’ growth investments, such as shares, are likely to be impacted more than those which invest mainly in ‘lower-risk’ income assets, such as bonds and cash.
It’s important to remember however that all of the BNZ KiwiSaver Scheme funds are well diversified. For the funds that invest in a mix of shares, bonds and cash, diversification will play an important role. At times like these, it’s these investments in bonds and cash that will help to cushion some of the falls we expect to see in share prices.
What should you be doing right now?
You’ll see from my previous blogs that the key message I like to stress during these events is to stay focused on the long-term benefits of KiwiSaver and your long term savings plan. Hang in there.
The diversification in your investments will provide you with some protection through this volatility. Over recent years, markets have experienced a number of sharp sell-offs. Whilst these events have been uncomfortable in the short-term, investors who maintain their investment strategy tend to be rewarded as the markets recover, whilst those who don’t tend to lock in the losses.
Although the outcome was a surprise for markets, our fund managers will have positioned their portfolios in anticipation of some market volatility around this event. What’s more, the sell-off should create opportunities for our fund managers, who will be watching market events with close interest and will look to take advantage of opportunities as they arise.
This article is solely for information purposes and is not personalised financial advice. We recommend that you seek advice specific to your circumstances from a financial adviser before making any financial decision. None of BNZ Investment Services Limited, Bank of New Zealand or any other person accept any liability for any loss or damage arising out of the use of, or reliance on, any information in this article.
BNZ Investment Services Limited, a wholly owned subsidiary of BNZ, is the Issuer and Manager of the BNZ KiwiSaver Scheme. Download a copy of the BNZ KiwiSaver Scheme Investment Statement PDF 1.7MB, or pick up a copy from your local BNZ store.