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Stock markets have declined markedly this week, as it became clear the coronavirus (or “Covid-19“) has not been contained within China; outbreaks in Italy and Iran seem to make it more likely the virus could spread around the world.
For the second time in 2016, investors are having to reflect on a surprising vote. After being shocked by the UK’s decision to leave the EU in June, financial markets are now coming to terms with Donald Trump as the next US president.
Both we and financial markets were surprised by the result of yesterday’s referendum. “Remain” had regained a lead in the opinion polls as the vote approached, so stock markets and sterling had been rising on the assumption the UK would remain in the EU.
It has been our long-standing expectation that the UK will vote to stay in the EU at the referendum on Thursday 23 June 2016. This judgement has been based on the belief that the British electorate is internationalist in nature and would respond to the exhortations of political leaders to continue with EU membership.
In late January, we published our market outlook for 2016, in which we said we expected stock markets to make progress after a weak start to the year. Our view was that the recent unsettling news from China shouldn’t derail economic growth in the developed world and markets would recover.
2016 has started with a re-run of the challenges from the summer of 2015, as the fall in Chinese share prices and the yuan have undermined confidence in financial markets. As before, clumsy actions by the authorities appear to have sparked the situation.