So what should investors do now, after their portfolios have taken such a hammering?
Britain’s vote to leave the EU dealt a savage blow to the UK stock market. In early trading on Friday the FTSE 100 index plunged more than 500 points to 5,788 before climbing back above the 6,000 level by the close.
Should I sell my shares now?
Almost certainly not, say the experts. Tony Vail, the chief innovation officer at Wealth Wizards, the robo adviser, says: “The key for investors and pension savers is not to panic. The worst thing to do is act in haste without thinking through the consequences. Taking your money out of the market when it is down ‘locks in’ the loss.”
He says the stock market may well fall by 5 to 10 per cent or more at some point (it is down about 3 per cent), but may move back up. He adds that sharp falls are not necessarily bad news for regular savers and investors, because when markets dip your money buys more shares.
Jason Hollands, of Tilney Bestinvest, the wealth manager, says investors need to hold their nerve over the coming weeks and put the market falls into perspective.
He says: “After rising in expectation of a Remain vote, the FTSE 100 is now basically back to where it was a few months ago. This is not Armageddon.”
■ Which sectors and individual shares are likely to suffer most?
City Index, the spread-betting company, has compiled a shortlist of the sectors most at risk from the Brexit vote. They include large UK retailers, banks, insurers and property development. IG Index says banks and insurers may be badly affected because they may no longer be able to sell policies and services into the EU. In addition, fears that financial groups look set to be hit by a Brexit may have a knock-on effect on the commercial property market, because their weakened position may result in them having less ability to buy office space.
Companies with high non-sterling revenues might actually benefit
Guy Foster, of Brewin Dolphin, the wealth manager, says: “Investors should be wary about stocks with lots of overseas costs but mainly UK revenues. The most obvious sector in this regard is general retailing, including companies such as Next, Marks & Spencer and AB Foods [through its ownership of Primark].”
■ Which sectors should do well?
Mr Hollands points out that more than 70 per cent of earnings of FTSE 100 companies are from overseas and so they are cushioned, in part, from any uncertainties surrounding the UK economy as a result of the Leave vote.
He adds: “When we get through the immediate reaction, companies with high non-sterling revenues might actually benefit from the currency impact of translating this income back into UK profits and dividends.” Among the stocks that might fall into this category are large global companies engaged in fast-moving consumer goods. Colin Morton, of Franklin UK Equity Income fund, says these companies proved among the most resilient on Friday morning, with share prices hardly down at all and some even showing rises.
■ Where are the safe havens?
One traditional safe haven is gold and investors were quick to pile into it early on Friday morning, sending the price up 22 per cent in sterling terms (when you combine the gold price rise with a sharp fall in sterling). BullionVault, which operates the world’s largest physical gold and silver market online, says demand has been building over the past month amid fears of a Leave vote, with the number of UK customers starting to use its services in June up 84 per cent on the 12-month daily average.
Shaun Port, the chief investment officer at Nutmeg online investment, says the company has already started moving investors’ money out of Europe, Japan and sterling corporate bonds and putting it into cash, long-dated government bonds and gold.
■ Are there opportunities to be seized from market turmoil?
Yes there are, say the experts. Mr Connolly says that when stock markets are falling it is a better time for buying than selling. A number of investment platforms, including rplan.co.uk and Interactive Investor, report that investors are sitting on unusually big levels of cash and this could be used to snap up bargains in the wake of Friday’s panic selling.
One sector that has tended to outperform over the long term is smaller companies. Gervais Williams and Martin Turner, who manage the CF Miton UK Smaller Companies fund, point out that smaller companies outperformed their larger rivals during recessions going back to the 1970s and 1980s and add that they are well placed to grow in todays’ troubled times. They say: “In aggregate, dividend growth from mainstream stocks is now flatlining, while aggregate dividends from smaller companies are increasing.”
Alex Wright, the manager of Fidelity Special Situations fund and Fidelity Special Values investmen trust, says he has been topping up holdings in several stocks whose share price had been unduly marked down by fears surrounding Brexit. They include Lloyds Banking Group, Royal Mail and BT Group.
■ Who should you be listening to for wise words?
The seasoned operators who have been in the financial industry for decades and have weathered numerous stock market booms and busts. Neil Woodford, of Woodford Investment Management, says that while markets are clearly shocked by the Brexit decision it is not as negative for investors as the initial market reaction would imply. He says an independent report that his company recently commissioned concluded that Britain’s long-term economic future would be largely unaffected by a decision to leave the EU. He adds: “In the longer term it is my view that the trajectory of the UK economy and more importantly the world economy, will not be influenced significantly by today’s outcome. Consequently the portfolio strategy will not change.”
Patrick Connolly, of Chase de Vere, the independent financial adviser, adds that if you are investing you must take a long-term approach. He says: “You must expect times when the value of your investments falls and you must be prepared to ride out these periods.”