Brexit Update

British Prime Minister Theresa May has announced that the UK would trigger the process of disentangling itself from the European Union (EU) by the end of March 2017.  This would set the stage for Britain to leave the EU by March 2019.

Once the process is started, the UK has a two-year window to negotiate its new relationship with the EU.  However, there are provisions that could allow the parties to extend the two-year timetable.

Mrs. May has also provided some insight as to her priorities for an exit deal.  She wants to win British companies the greatest freedom to operate in Europe’s single market, but not if it means relinquishing the right to curb immigration into the UK.

Investors should remember that the entire Brexit exercise is going to take more than two years.  During that period where will be considerable speculation by various parties as to the eventual outcome and the implications.  This could cause market fluctuations, that are very likely to be temporary.  It should be noted that both France and Germany will be holding elections during the Brexit negotiating period, thereby adding to the potential for short term market misdirection.

At this time, no one knows how this is all going to turn out.  However, some will benefit and others may be adversely affected.  For example, the British pound has weakened significantly.  This will benefit Britain’s large international companies with significant export revenues.  Rolls Royce, for instance, exports approximately 85% of its total volume.

All comments and suggestions are welcome.

Walter J. Kirchberger, CFA®