You gotta love the names the media comes up with for things anymore. This one reminds me of some kind of breakfast casserole. Back to the point, I’m sure some of you have seen this word popping up on the news. What “Brexit” refers to is that on June 23rd the U.K. will vote on whether or not to stay in the European Union (get it; Britain, exit). U.K. residents cite many reasons for wanting the split, namely trade regulation, control over immigration, and individual sovereignty. Did you know the EU, headquartered in Brussels, controls up to 55% of British laws?†.
We’ve asked for general thoughts from some fund management teams we work with in addition to our reading to see what this could mean. What we’ve gathered is that companies strictly domestic to the U.K. may find trade more difficult than they did in the EU, and could also run into a decreased labor force. Multinational companies domiciled in the U.K. could see stricter trade regulation, but may also benefit from currency weakening that could occur.
The big concern is that this action may entice other members to start jumping ship on the EU. Analysts believe France and Germany won’t let the U.K. get off on trade deals easy for this reason. But remember, the U.K. hasn’t left yet. Right now the Financial Times Poll shows 47% want to stay and 40% want to leave and even if they do choose to leave they may not leave completely.
Basically the worst case for the market is that the U.K. leaves the EU because this will create uncertainty while new trade deals are in the works. This uncertainty is bad for the market, but good for managers who could have the chance to buy good companies at better prices. The politicians will all sit around a table and figure this out and companies will continue to do business. And remember “U.K.” companies represent many names that you see in your everyday life like Shell, BP, AstraZeneca, Prudential Life, and Unilever. Think these guys are going out of business if trade with Belgium is a little tougher?
If anyone has further questions about their individual positioning in relation to this issue, please give us a call.
All the best,
Wesley R. Nicholson, Mike Allen and Aaron Everdyke
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