Investors should guard against complacency in post-Brexit world

IN the week after Britain voted to exit the European Union in a referendum now etched in the collective memory as "Brexit", stock markets around the world defied expectations by rallying sharply.

Prior to the June 23 vote, experts had warned of probable financial Armageddon because of the uncertainty and volatility that a "Leave" outcome would trigger. After a two-day selloff when "Leave" surprisingly prevailed, stocks soared virtually non-stop: in London, the FTSE gained 9 per cent in a week; and in Europe, the Euro Stoxx 50 surged 6 per cent over the same period.

This outperformance came despite a flight to safety that has propelled gold and the Japanese yen to new highs, and bond yields in the US, Japan and Germany to new lows. Since then, however, equities have undergone a steep correction that should serve as a warning against complacency and a reminder that market risks originating from Brexit should not be underestimated.