Voters in the United Kingdom have decided to leave the European Union. The move shocked investors and traders around the world. And the economic fallout from the vote is already being felt in Alaska, from the price of oil to the permanent fund.
Last night, the CEO of the Permanent Fund Corporation, Angela Rodell, her chief investment officer and a few other staff watched the votes roll in on the U.K. referendum, also known as Brexit. They were trying to get a figure out a strategy for trading on the stock market today.
When the corporation’s traders started the day at 5:30 a.m. as the U.S. markets open, they were ready to go with strategies to cope with the the drop in the stock market. Rodell said the polls had been close, but most experts expected the vote to go the other way:
“… and so when the vote came in the opposite direction, that’s why you’re seeing the tremendous sell-offs in all the global markets,” Rodel said. “Overnight in the foreign markets and then today now in the U.S. markets.”
The Dow Jones industrial average plunged by 600 points, down about 3.39 percent.
The corporation is responsible for managing the investment of the $52 billion permanent fund and earnings on its investments determine the size of the PFD.
While managers at the corporation were prepared this morning for the global shock, Rodell said the fund is still going to take a hit.
“When we post the returns for today on Monday, on the website and stuff, when we look at the daily market movements and sort of the value of the fund we are definitely going to be down on Monday, we are not escaping this shock,” Rodell said.
But, Rodell said, the fund managers have confidence in the market and are using the opportunity to invest.
“There are opportunities to take advantage of this dislocation and to get into arenas and take advantage of the drop in pricing so that when the short term shock wears off and the market moves back to what we think is more normalized, we will have that gain in place then that will have countered some of the losses we’re taking today,” Rodell said.
Other Alaskan analysts have also watched the economic fallout of the voter referendum, including Department of Revenue Assistant Chief Economist Dan Stickel. He’s an 11-year veteran of the department and is involved in oil price forecasting.
He isn’t too worried about the short term impact of the five percent drop in the price of oil. He said the vote, also known as Brexit, isn’t likely to have a large immediate impact on the fundamental supply and demand-driven oil market.
But, there could be long-term impacts on oil prices.
“I think oil prices, gasoline prices, natural gas prices, LNG prices, over the long term, those are going to be determined by supply and demand and so if the impacts of what’s going on in Europe have impact on global demand, then yes, those could impact energy prices across the board,” Stickel said.
Lower oil prices will make it more difficult for the state to close the $4 billion budget deficit.
Rashah McChesney is a photojournalist turned radio journalist who has been telling stories in Alaska since 2012. Before joining Alaska's Energy Desk, she worked at Kenai's Peninsula Clarion and the Juneau bureau of the Associated Press. She is a graduate of Iowa State University's Greenlee Journalism School and has worked in public television, newspapers and now radio, all in the quest to become the Swiss Army knife of storytellers.
