Britain’s majority vote to leave the European Union yesterday has left many global investors reeling this morning.

The markets didn’t anticipate this and it was only in early June that people started waking up to fact that the referendum on June 23 would see a close vote, says Andrew Torres, managing partner and chief investment officer at Lawrence Park Asset Management in Toronto.

Following the 52 per cent vote for in favour of a ‘Brexit,’ global stock markets plummeted. Key indexes dove 10 per cent in Germany and about eight per cent in Japan and Britain, according to the Canadian Press. The euro fell against the dollar and the pound dropped to its lowest level since 1985, decreasing more than 10 per cent from about $1.50 to $1.35 before a slight recovery.

Read: How would Brexit impact the financial industry?

In turn, safe haven assets such as the U.S. dollar, Japanese yen, U.S. treasuries and gold are all likely to strengthen, according to a release from TD Asset Management.

The banks have been hit the hardest, says Torres. “Even on this side of pond, there is a knock-on effect. As we know from 2008, the world is intertwined. If U.K. banks are lower, then it’s going to have an effect on Canadian and U.S. banks. We’re seeing all banks lower today.”

Read: How could Brexit affect Canadian pension investments?

Investors’ confidence dipped further when Prime Minister David Cameron announced he would resign by October and allow his successor to decide whether to invoke Article 50, which triggers a departure from the union.

His decision leaves a lot of “unanswered questions,” says Torres. “This will definitely cause a heightened level of volatility in coming weeks. But, there’s even longer-term ramifications here. The U.K. has set something in motion that may be hard to slow down. I hope Britain can negotiate some rational trade agreements.

While capital investors are already feeling the full impact of a leave vote, institutional investors such as pension funds with substantial real-estate investments in Britain are not immune from the fallout, say experts.

Read: Brexit vote creates buying opportunity for U.K. companies

Investors that don’t have currency hedging in place have “taken a significant haircut in just one day,” says Torres. “Things like the construction industry and infrastructure projects will be put on hold because they don’t know how the next agreement with Europe will play out. I think there will be a period of lower economic activity which will cause me to be cautious even in hard assets within Britain.

Those institutional investors that have substantial holdings in London will likely be affected, notes Michael Greenberg, portfolio manager at Franklin Templeton Solutions.

Also, companies with major headquarters in the city may be pushed to relocate their offices elsewhere if Britain permanently leaves the union for fear of not having access to the large European market, he says. “It’s a big risk for investors who are relying on those tenants to stay.”

Read: How could Brexit affect Canadian pension investments?

Greenberg adds that while there’s undoubtedly short-term volatility in the European and British economy, it’s hard to say what the future will hold. “It will be hard [for Britain] to negotiate with the EU, and it could take a while,” he says. “It could be a couple of years before the negotiation is complete.”

Several institutional investors are choosing to stand their ground during the chaos and have sent bulletins announcing their strategy following the vote.

“In the current environment, there is a broad range of potential outcomes, and we believe it is crucial for investors to retain a long-term perspective and maximize diversification benefits within their portfolios,” said TD Asset Management.

Blackrock has taken a similar stance and said in its bulletin that “the vote does not change BlackRock’s management of client assets in Europe” and that it does not “foresee any disruption to how [it manages] portfolios.”

Great-West Lifeco., which has deep roots in Europe and has had a presence in Britain since 1903 said in a release it will continue to work closely with its customers and partners in Britain.

“We’ve set ourselves to be defensive in our portfolios,” says Greenberg. “The question is whether to dip in the market or let the dust settle. We’re choosing the latter point.

Read more articles on Brexit from Benefits Canada‘s sister publications:

Copyright © 2017 Transcontinental Media G.P. Originally published on benefitscanada.com

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