Initial market reaction was negative, but history tells us that markets often overreact to unexpected news. In the immediate reaction to the Brexit vote, UK and European share markets fell sharply and the British pound also dropped. At the same time, government bonds and gold rallied.

However by the end of June, a moderate recovery in equity markets was underway as the focus turned to expectations of further stimulus from central banks. 

The UK FTSE 100 index, which initially plunged 9% intraday after the result, finished the month well above its post-Brexit lows, because a 10 per cent slide in the British pound was expected to make exports more competitive.

As a result of Brexit, we expect that the UK economy will experience a reduction in investment and confidence.  There may also be questions over time about London’s role as a global financial centre. 

We believe the uncertainty will dampen economic growth in the UK and in Europe, because of its close trade ties with the UK.

However, a weaker UK economy is not expected to have any direct impact on the two main drivers of global growth -- China and the United States.

The initial market moves were partly reversed by June 30 as investors took time to analyse the implications of the Brexit result. Separation from the EU will take two years to negotiate and raises many complex issues. While there will be no immediate changes, there will be an ongoing period of uncertainty.

Importantly, we believe central banks are prepared to cushion the economic fallout with further stimulus if necessary. Speculation about further interest rate cuts, including from the Reserve Bank of Australia, has helped share markets to recover at the end of the month.

The Australian share market fell 2.7 per cent in June, following three straight months of gains. Stocks with a large UK exposure sold off heavily, including Henderson Group and BT Investment Management. Banks also fell, while gold stocks surged as the gold price rallied.

Equity markets around the world slumped in the first two trading days following Brexit. The Euro Stoxx 50 index dropped 11 per cent, before recovering at the end of the month.

A weak US employment report and cautious commentary from the US Federal Reserve reduced expectations of future US rate hikes. Indeed, after the Brexit vote, investors bet the Fed would not be raising interest rates at all over the next 12 months.

After the Brexit vote, bond prices surged and yields dropped, with German 10-year bond yields falling below zero for the first time. The Australian government 10-year bond yield also broke records, falling below 2% for the first time.

Not surprisingly, the British pound fell heavily against most other currencies and touched a 31-year low against the US dollar of US$1.31. The Australian dollar rose against the pound, euro and U.S. dollar but fell against the yen and New Zealand dollar.