Stock Market & Brexit

[Dod101]

I must say I am surprised that Mr Market seems to be totally unfazed by the Brexit chaos. It is looking very good today and in fact I guess that my two portfolios must be as high as they have ever been. What is going on? Maybe a no deal Brexit is just what is needed.

Dod

[tjh290633]

You could be right. The Market is a funny place.

TJH

[Lootman]

Given the choice of believing the markets or believing political pundits, poobahs and prognosticators, I will always choose the markets.

Evidently the credibility of Project Fear is fully priced in.

What is not priced in is a Corbyn government but then maybe the markets are telling us that won't happen either.

[YeeWo]

The main London indices are dominated by MNCs which operate globally. If Mrs May succeeds in creating a civil war followed by a Tsunami destroying the British Isles the large MNCs will still be generating earnings from the other 99% of humanity that remains.
To me this starting look like either EEA/EFTA/Hybrid or WTO/No Deal all of which, thinking beyond ones personal voting preferences, can IMHO be made to work over time........

[SalvorHardin]

Brexit news tends to affect the exchange rate. With over three-quarters of the FTSE100's sales/profits coming from overseas, the UK stockmarket isn't all that exposed to the domestic economy anyway.

Things which excite the pundits, journalists and politicians often do not influence the Stock market to the same extent. The pain that a no deal Brexit will cause IMHO is overstated; modern economies are highly adaptable and producers and consumers will find a way to work around whatever barriers appear.

And of course markets tend to price in the future to some extent; efficient market theory tells us that some (or all) of the final Brexit deal is already reflected in market prices.

Given the appalling track record of economic forecasters and pundits, the market is probably ignoring their predictions of disaster. After all, it was supposed to be a disaster if we left the ERM, didn't join the Euro or voted to leave the EU - the predictions of economic Armageddon failed to materialise in all three cases. Remember that the pundits' consensus was that Trump winning the 2016 US Presidential election would cause the US stockmarket to crash; instead it has boomed.

[OhNoNotimAgain]

I must say I am surprised that Mr Market seems to be totally unfazed by the Brexit chaos. It is looking very good today and in fact I guess that my two portfolios must be as high as they have ever been. What is going on? Maybe a no deal Brexit is just what is needed.

Dod

Brexit has not happened yet so you are looking at noise from so-called experts, not a signal from businesses.

[swill453]

Brexit has not happened yet so you are looking at noise from so-called experts, not a signal from businesses.

So you're saying either businesses have no idea what effect brexit is going to have, or for some reason have decided not to factor it into their rationale for buying or selling shares?

I find that a bit hard to believe.

Scott.

[OhNoNotimAgain]

Brexit has not happened yet so you are looking at noise from so-called experts, not a signal from businesses.

So you're saying either businesses have no idea what effect brexit is going to have, or for some reason have decided not to factor it into their rationale for buying or selling shares?

I find that a bit hard to believe.

Scott.

Businesses, other than ITs, do not normally buy and sell shares. They either buy raw materials and sell products or provide a service. Whatever they do they have to cope with with the prevailing market and regulatory conditions and anticipate change. But those changes have not happened yet.

[Spet0789]

The main reaction to Brexit so far by corporate Britain has been to reduce investment (or make it elsewhere in the world). This won’t touch earnings for now and may even increase them.

UK labour markets are very flexible. When you can make redundancies in 2-3 months, why do it sooner? If no deal is looking likely come Christmas, expect job losses to come down the chimney.

[Dod101]

But my point is that investors are apparently buying UK shares at the moment so they are either ignoring Brexit or see the way it is going as a positive. I am not sure whether or not we should be bucked by that but I am prepared to believe any form of Brexit will be better than what we have had. That seems to be what the market is telling us right now.

Dod

[Howard]

Is one of the reasons for the UK market seeming high in pound terms, that the pound is relatively low against the euro, dollar and swiss franc? So UK listed companies earning in those currencies appear more profitable in sterling terms.

If the market believes that the pound may fall further as a result of Brexit, it may consider that UK companies with international businesses could offer good value.

This doesn't mean that the market believes the average UK employee will be better off in the future. I think the market may be agnostic on that issue.

But, yes, the market obviously doesn't expect disaster for the average UK company - at the moment.

regards

Howard

[OhNoNotimAgain]

The main reaction to Brexit so far by corporate Britain has been to reduce investment (or make it elsewhere in the world). This won’t touch earnings for now and may even increase them.

Any evidence for that assertion?

[genou]

Brexit news tends to affect the exchange rate. With over three-quarters of the FTSE100's sales/profits coming from overseas, the UK stockmarket isn't all that exposed to the domestic economy anyway.

Indeed. I can't work out a direct link to the comparison. Go here https://markets.ft.com/data/indices/tea ... USD%2B:FSI , then choose Comparison and choose FTSE. It will show you the comparison between the FTSE in USD and GBP. You can then move the timescale back to include the referendum.

The performance in GBP is an FX illusion, not shared by the rest of the world.

[colin]

The performance in GBP is an FX illusion, not shared by the rest of the world.

Yes if seen from the perspective of the dollar which has strengthened against all other currencies due to the interest rate tightening cycle.

[BusyBumbleBee]

Moderator Message:
RS: This is an investment board. Investment related posts only please. More general political posts on Brexit can join the throng on Polite Discussions. Thank you.

[richfool]

My understanding was that UK stocks have been depressed, or at least less buoyant, than other geographical sectors because of Brexit concerns, therefore they may represent more of a buying opportunity than other global sectors.

Also, the fluctuations in the value of the £ make some UK stocks more or less attractive because of their foreign earnings. (When the £ falls, they go up in value/SP, and when the £ strengthens, they go down).

[Lootman]

Also, the fluctuations in the value of the £ make some UK stocks more or less attractive because of their foreign earnings. (When the £ falls, they go up in value/SP, and when the £ strengthens, they go down).

But the companies that have a lot of foreign earnings might be the ones more negatively affected by dislocations in international trade. So I don't know it's as simple as buying the exporters.

The UK has been under-performing since long before Brexit. The FTSE-100 is still only about 10% higher than its 1999 high. The S&P 500 has doubled from its 1999 high. I don't think many are betting on a reversion to the mean there.

[hiriskpaul]

On the evening of the referendum, when it looked as though Leave had won, GBP/USD was up around $1.50 and if we end up with a super soft Brexit, such as EFTA, I think that is where it will go again. That will not be good news for investors holding foreign shares/bonds or UK listed multinationals. OTOH, should we get a chaotic no deal Brexit, I think we will see some downside for the pound, but not so much as I think a lot of bad news is already in the price.

I also think that a no deal Brexit is quite unlikely and if that looks like the outcome, either a backup exit treaty will be hastily agreed to cover the minimum that is needed to keep planes flying, etc., with an FTA to follow, Or Brexit will be delayed.

So for the moment I am holding a lot of cash/bonds in GBP, but I might well buy some GBP/USD calls when we get closer to April. At least, that is my current approach, but events may force me to change direction. The price of calls may also go through the roof, in which case it might potentially be more profitable to sell them!

[Avalaugh]

Important to remember that article 50 removes us from all treaties including those with which we trade with other countries and not just the EU.
We will not get a deal on those, we will lose ability to trade without friction with 60 other countries outside the EU. Huge loss of earning for exporters.
We will most likely go no deal or another vote to remain,
So prepare for parity with the dollar for the pound or 1.50 for a remain.

Cheers

[Hariseldon58]

It’s notoriously difficult to reliably predict currency movements and I’m sure that the Pound could bounce around sharply on Brexit news but expect the unexpected!

The dollar is currently strong which suggests the current rate £1 to $1.29 would otherwise be quite a lot higher.

The Corbyn factor puts a downward spin on the pound so I must admit that I’m keeping a strong overseas bias.