What Investors Should Know About Brexit

Brexit refers to the European Union exit by Britain. A referendum has been set for 23rd June 2016 and its result will be closely watched. Before that judgment day, here are some of the pertinent information that every investor should be aware of.

Impact of a Brexit is Highly Uncertain

As no country has ever exited the bloc before, there is much uncertainty surrounding the impact of a Brexit on Britain and global financial markets. In fact, there are two separate camps campaigning for and against a Brexit. HSBC has done a wonderful outline of all the major points.

As it now stands, the economic argument leans towards remaining in the EU, with Brexiters having failed to give a convincing economic argument on the benefits of leaving. World leaders, from United States President Barack Obama to Japanese Prime Minister Shinzo Abe, have maintained their support for Britain remaining in the EU.

Likelihood of Brexit Remains Low For Now

Polls are never perfect, but they indicate a preference towards remaining within the EU. In fact, superforecasters see a 23% chance of a Brexit.

Brexit

While the likelihood of a Brexit fluctuates, it has consistently been in favour of remaining in the EU. Bloomberg has a live poll tracker which indicates a similar sentiment. However, public opinion remains highly volatile and the outcome is anything but certain.

Key Investment Impact

According to Bloomberg, pretty much everyone agrees Brexit will hurt the British pound, with the debate more about how much the currency will depreciate. As British goods do not get a preferential tariff, a Brexit is not expected to have a significant impact on the trade and investment flows between Singapore and Britain.

In essence, companies with a significant currency exposure to the GBP will warrant more monitoring. Companies with earnings exposure to the GBP will see a decline in profits based on local currency terms. On the other hand, companies with net cost exposure will see an increase in profits. Notable names that come into mind include GuocoLeisure, Mapletree Investments, CDL, ComfortDelGro and Centurion. Risk-adverse investors may want to hold off entering into such positions at least until the referendum is completed.



About the Author

SG Value Investor
I developed my passion for investment management especially equity research at a relatively young age. My investment journey began when I was 20, at a point in time where markets were still recovering from the Global Financial Crisis. My portfolio started from money I saved over the past years and through working during the holidays. I was fortunate to have a good friend with common investing mentality to began my journey towards value investing. To date, we still research and invest in companies together, discussing valuations and potential risks of a company. To date, I manage a fund with a value investing style. Positions are decided upon via a bottom-up approach or smart speculation (a term I came up with when buying a stock for quick profit due to a mismatch in prices in the market due to takeovers/selling of a subsidiary or associate). Apart from managing my own portfolio, I enjoy sharing my research with family and friends, seeking their opinions and views towards the stock. Reading Economics in London, I constantly keep up with the financial news in Singapore & Hong Kong. Despite my busy schedule, it has not stopped me from enjoying other aspects of life. I enjoy a variety of activities in whatever free time I may have – endurance running, marathons, traveling, fine dining, whiskey appreciation, fashion. Lastly, I enjoy meeting new people, discussing ideas and gaining new perspectives towards issues in the world.