Could the European Union and share markets benefit from Brexit?

Britain has received an enormous amount of backlash in response to its decision to leave the European Union.

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Equity markets around the world bounced back overnight following heavy sell-offs after Britain shockingly voted to leave the European Union.

Of course, there is still plenty of uncertainty surrounding the issue. Part of that includes speculation that Britain may hold a second referendum vote with more than 4-million individuals signing a petition to do so (even though Prime Minister David Cameron has all but ruled that out), and there is speculation over whether other members of the EU will follow Britain's lead out of the group.

However, there have also been suggestions that Britain's controversial decision could benefit the EU.

Again, no one knows for sure what will happen next, which is why global markets have responded so swiftly. In other words, this is all just speculation for now.

But in the time since the result was finalised, Britain has received an enormous amount of backlash. A recession in the United Kingdom is now considered likely by a number of economists, together with a very tough adjustment period over the coming years, with a number of its own citizens who voted "Leave" now expressing their regret in doing so.

To some individuals leaving the EU may have seemed like a good idea in the lead up to the vote, but the horror of the situation and what their country could be forced to endure in the coming years is only just sinking in for them now. A potential recession is just one factor, together with higher costs of living as a result of the weaker pound, and there being the potential for elevated unemployment rates.

There is a chance that the UK will decide against leaving the EU after all (it wasn't a binding referendum). But regardless, the EU will likely make this a very difficult transition for Britain to deter other countries considering filing for divorce from the EU.

Or as The Australian Financial Review so delicately put it, "They have every incentive in making Britain "Exhibit A" as to why life outside the EU sucks."

If Britain does decide to follow through with the divorce, the process could take more than two years as it negotiates new trade deals with the EU and figures out exactly how to deal with the mess.

While there is likely to be some volatility experienced by global markets in the near future, investors could perhaps use that opportunity to buy shares of businesses that are unlikely to be directly affected by Brexit, yet whose share prices have tumbled anyway.

It's also possible that the Reserve Bank of Australia will be more inclined to cut interest rates in the near future to ease the market's tensions. That could benefit shareholders of businesses such as Telstra Corporation Ltd (ASX: TLS) and Commonwealth Bank of Australia (ASX: CBA), which both offer solid, fully franked dividend yields.

Again, this is all speculation for now – no country has ever left the European Union so there is no precedent to refer to. While the uncertainty of the situation may make for an uncomfortable time. However, it could also create some great buying opportunities which investors should most certainly be on the lookout for.

Motley Fool contributor Ryan Newman has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »