Save from as low as €40 per month Change modify pause
An unexpected Brexit outcome hits, though many of the repercussions being seen were clearly foreseen. The choice of the British people to leave the EU has triggered political commotion in the UK and influenced European far right parties to demand their own referendum on EU membership.
Just like turning a gun on oneself, the British knew exactly what they would be in for, yet the belief that such an outcome would not be successful as measured by exit polls prior to the referendum, did little to keep market volatility in check.
Whatever the reasoning behind the outcome, what is done is done and what may have just been by some an intention to scare the government and vote in favour of a Brexit is unfortunately now a reality. The EU is waiting on the British to pack their bags, left to negotiate the details of who gets the kids, the house and the car.
The panic that ensued resulted in sell offs across all risky assets across the globe. With many continuing to recover, opportunities remain in many high yield debt issues that have some sort of commitment with the UK, whose spreads have widened considerably.
As at yesterday, uncertainty continued to add pressure on the pound (which today reached new lows), and the political saga taking place following the resignations of Prime Minister Cameron and UKIP leader Nigel Farage certainly is contributing to the uncertainty around a speedy resolution.
For many Brits, ironically, the regions that most voted in favour of leaving the EU were reliant to some extent on EU funding projects. Granted, it is clear that the EU requires certain Bloc wide reforms but a Brexit vote was clearly a short-sighted impulsive vote to get a message across.
The message is now across and this week British Services PMI and Construction PMI are both below consensus expectations in the latest round of data figures, two sectors, who will undoubtedly be impacted and eager to avoid a nationwide recession once exit talks begin.
On the bright side, French presidential candidates such as Alain Juppe of the UMP party are already adding the Brexit saga to their campaign agendas. The UMP candidate assured that Britain would not be punished should he be chosen as party candidate and close ties would none the less remain between the two countries.
At this point it seems many Europeans and Brits are aware that the solution is to rectify an obvious mistake in the long term and identify viable solutions without going against the values of democracy. In an unprecedented event, it is left to see whether turning to the private sector for exit negotiations, as engaged by Britain yesterday, will provide a path to stable financial health, following close to unprecedented capital outflows from numerous UK banks and sterling denominated risky assets.
Whilst the political issues should be left to the politicians to sort out, our job is to seek value and make money where opportunities arise. At this point, uncertainty clearly doesn’t make the task easy. Having said that, it has widened numerous high yield spreads (lowered prices) across the board and created opportunities for investors to hand pick risk-adjusted value trades that will boost a portfolio’s performance in the short term at least until an accurate Brexit outcome is known.
That said, it seems that headwinds are also prevailing in other areas, such as the banking sector in Italy. Thus, despite emerging opportunities following Brexit, let’s be rational in our asset allocation and expect a bumpy ride.
You are signing up to receive news, updates, general market announcement, articles and product or service marketing. By signing up you are consenting to our privacy policy and can unsubscribe at any time.