Investors waking up this morning are likely to be rather poorer than they were yesterday, with the FTSE 350 (INDEXFTSE: NMX) being down over 5% at the time of writing. Clearly, this is a major fall in value for the 350 largest UK-listed companies by market capitalisation and we need to go back to the depths of the credit crunch to find any intra-day movements that compare with such falls.

The FTSE 350 has been down by as much as 9% today but in the last couple of hours has staged a comeback of sorts. Therefore, in the next hour anything could happen, with there being the potential for a return to being 9% down (or more), or a further recovery as investors realise that not all FTSE 350 companies are likely to be hurt by Brexit.

In fact, nobody knows what the impact of Brexit will be on the UK economy, or on the EU and global economies. That’s because it’s an unprecedented event and there are simply no facts available to deduce how much of a negative (or positive) effect it will have on company earnings and the outlooks of FTSE 350 stocks.

Things can only get…?

However, what can be safely said is that Brexit is causing huge uncertainty and this is unlikely to go away any time soon. As such, there’s the scope for things to get worse before they get better for the FTSE 350.

For starters, the UK now needs to appoint a new Prime Minister. This process is likely to be completed by October and while a General Election may be on the cards, it could be just a case of the Conservative party simply appointing a new leader. Either way, it causes uncertainty among investors and is likely to have a negative impact on investor sentiment, which is likely to cause the FTSE 350 to come under pressure over the coming months.

Similarly, the UK’s exit from the EU must be negotiated by the new Prime Minister. David Cameron has said he won’t invoke Article 50 of the Lisbon Treaty, so the two-year (or possibly longer) process of negotiating the UK’s exit from the EU won’t start until later in the year at the earliest. This could be a long, drawn-out process that causes yet more uncertainty for investors and has a negative effect on the FTSE 350’s price level.

Possible comeback

Of course, the FTSE 350 could also stage a strong comeback following its short-term fall. Many of the companies listed in the FTSE 350 are international and generate the minority of their sales and profits from the UK economy. Therefore, with the US and Chinese economies continuing to offer upbeat growth prospects in the long run, the FTSE 350 could be more heavily influenced by the global rather than local outlook in terms of the UK’s negotiations with the EU and its own economic performance.

Either way, investors in the FTSE 350 should get used to high levels of volatility. Having paused for breath after the EU referendum, attention will soon turn to the US election. This also offers the potential for a highly uncertain outcome. Buying opportunities may come along, so while short-term falls in the FTSE 350 may test all of our nerves at times, in the long run they could be opportunities to buy high quality companies at majorly discounted prices.

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