What impact Britain’s decision to leave the EU will have on the Canadian real estate market is the industry question of the moment, and it’s
one Dominion Lending Centres
chief economist Dr. Sherry Cooper addressed on her blog shortly after the historic vote on June 23.
In her post, Cooper said the most visible consequence will be prolonged uncertainty in global markets.
“Stock markets around the world are reeling – the British pound has taken an unprecedented nosedive; commodity prices, with the exception of gold, are plunging; and interest rates are falling sharply,” Cooper wrote. “Banks and insurance companies are hardest hit, but businesses worldwide that do business in the UK or in Europe are faced with disturbing questions that could take months or years to answer. Moreover, hedge funds and other investors around the world that have been caught on the wrong side of this trade are scrambling, which likely portends a sell-off in risky [assets].”
Cooper predicted that another immediate impact would be strong downward pressure on interest rates worldwide.
“Not only will the Bank of England and the European Central Bank ease further, so will central banks in Switzerland and Japan,” she wrote. “The Fed, which was widely expected to hike interest rates once again in September, will likely remain on the sidelines.”
Cooper lamented what she called “a vivid indication” of growing isolationism and ultra-nationalism, fuelled by demagogues worldwide.
“The broad middle class in all countries have been squeezed by forces that have pushed production to cheap-labour emerging economies or have replaced their jobs by technology,” Cooper wrote, adding that the ensuing economic stagnation has fed into xenophobic scapegoating in a seemingly intractable cycle.
While the political ramifications appear to be insoluble for the moment, investors should try their best to keep a cool head and avoid falling into the trap of panic selling, Cooper advised. “It is a buying opportunity for longer-term investors. At the same time, do not try to time markets. No one can pick the bottom, and market timing never works. Canadians who have some dry powder should consider buying their favourite stocks as they are sideswiped by the British vote.
“While [Brexit] is not good for our economy, the negative impact will be relatively muted,” Cooper concluded. “Nevertheless, financial turmoil and uncertainty will continue for some time, which is never good for confidence, and therefore risk-taking and spending.”