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.
Investors Flock To Hedge Funds As Markets Recover
According to a recent Credit Suisse survey, investors are more interested in hedge funds than any other major asset class going into the second half of the year. Q1 2020 hedge fund letters, conferences and more This is a big switch from investor sentiment in the first half of 2020. Indeed, hedge fund launches slowed Read More
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.
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.