Lessons from 2016: The Brexit Surprise

2016 is drawing to a close.

As the curtains come down, I thought it would be a good idea to have a series of articles looking back at the events of the year to draw lessons from them. This is the fourth part of the series.

Note: Here’s the first article in the series, here’s the second, and here’s the third.

Surprise, surprise

On 23 June 2016, the United Kingdom (UK) voted in a referendum to part ways with the European Union (EU).

Around the world, stock markets reacted in shock. The vote to leave, often referred to as “Brexit,” was unexpected. On the following day, the Straits Times Index (SGX: ^STI) ended the trading session lower by 2%. Newswires cited uncertainties related to Brexit as the main cause.

We are now into the sixth month after Brexit. It might be worth looking back at what has happened since the referendum vote.

Scaring ourselves

For one, economists had warned that Brexit will have a swift and painful impact on the UK economy. So far, none of the warnings have come true. Retail sales in the UK rose 6.2% while the UK economy grew 0.5% in the three months after Brexit.

Then, there is the exit negotiation between the UK and the EU. UK Prime Minister Theresa May has set a deadline for Article 50, which starts the formal exit negotiations, to be triggered before March 2017. EU leaders, though, said that formal negotiations will not start until Article 50 is triggered. In other words, formal negotiations have not begun.

As such, no one knows what the final agreement between the UK and the EU will look like. I would reckon that both parties do not know either, since it would have to be an arrangement between each other.

The lesson here, for me, is this: The stock market sell-off that happened was not because the people selling knew what was happening. It is more likely that the sellers did not know what was happening, and that worried them.

As investors, our interest might be better served at looking at the long-term prospects of businesses, rather than the day-to-day reactions of the stock market.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong doesn’t own shares in any companies mentioned.