On June 23rd, citizens of the United Kingdom will be asked whether or not the country should leave the European Union.
Little History: The UK joined the EU in the mid 1970’s after a series of negotiations. Even though Britain is a member state – the country has never been a “complete” member. They never accepted the Euro and opted to keep their own currency, the Sterling Pound.
Both Sides at a Glance:
Stay:
David Cameron is leading the fight arguing that the UK will be better off economically as a member. The European Union is the UK’s largest trading partner and the reason for this is the EU’s open border system allowing an almost free-flow of goods and services between its member countries. Should Britain withdraw it would lose this privilege leading to an increased cost of business which would translate into higher prices and a slower economic growth.
Leave:
Leading the charge here are many MP’s including Boris Johnson – London’s former mayor. As an EU member, the “leave” side has argued the movement of migrants from other EU countries into Britain has over saturated the market leading to a downward spiral effect in employment and housing sectors. In addition, should Britain leave the EU it would not have to pay billions into the system saving them money that could be used for Britain’s other economic priorities.
Reactions from Across the World:
Financial markets have literally been on a roller coaster ride for the past few weeks. There is a lot of uncertainty in the air and prominent institutions like the Bank of England have put out statements ushering “immediate risks facing the markets and a spill over effect to the global economy should the leave side win” (BBC). I even read an interesting article last week that some investors are moving money from risky holdings to safe haven investments such as bonds and gold. It has long been thought – that gold is the safest investment in times of uncertainty. In the last month alone, gold has risen almost 4%. Now this is probably not the only reason as the fluctuating oil prices and job reports from around the globe have also influenced this rise.
What do as an Investor:
Many companies in north American portfolios do hold assets or conduct business in the UK. Should the leave side prevail, there is a possibility their stock will be hit. It would take a while for Britain to re-negotiate an agreement with the EU- its biggest trading partner.
Overall though the majority of the companies boast an international profile doing business all around the world so they may not take a big hit. However, companies that solely conduct business in the UK and depend upon the EU to succeed may face larger obstacles. It may be a good time as an investor to opt for greater diversification in your portfolio to limit any losses if the leave side wins.
Who knows, if the global markets do get hit – it may be a good opportunity to pick up some reputable stocks or investment products at a cheaper cost.
However, I find the largest effect and possible opportunity to be with their currency the British Pound. Experts are warning that should the leave side prevail – its currency will most likely take a hit. Some experts are even stretching it as far as saying it will be at par with the Euro for the 1st time in history (Spence and Wallace).
If you are someone that holds pounds, it may be a good time to exchange them into Canadian or US dollars at a high rate of 1.86 for CAD and 1.45 USD and exchange it back to pounds after the referendum. I’m sure many of you have heard of George Soros who made over 1billion US in the late 1900’s after he bet against the pound. In turn, it may be a good opportunity to buy British Pounds after the referendum.
Read this article on currency hits due to Brexit
Please be warned however, that forex (foreign exchange) markets are highly volatile and fluctuate considerably especially during global events such as Brexit.
All eyes will be on Britain this week.
Disclaimer: Please be aware that all of the information is my own personal opinion. The information above is a broad explanation of the situation. Please refer to the sourced articles or proper databases for further information. Please be aware markets and forex markets will have considerable movement and exchange of shares in the days leading up to an event that may not paint the entire story.
References:
Display Picture: http://blog.sonneil.com/wp-content/uploads/2016/03/brexit-shutterstock2.jpg
Gold Chart: http://www.straitstimes.com/sites/default/files/st_20160620_xgold_2379800.jpg
http://www.bbc.com/news/business-36548460
Spence, P., & Wallace, T. (2016, June 18). City bets on pound to suffer bigger plunge than ‘Black Wednesday’ after Brexit vote. Retrieved June 19, 2016
Waldie, P. (2016, June 19). Could Britain really leave the EU? Your guide to understanding the Brexit. Retrieved June 19, 2016,
Brexit poses global financial risk, Bank of England warns. (2016, June 16). Retrieved June 19, 2016,
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