Brexit: How Investors Can Make Money
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What immediate market context frames the Brexit investment discussion?
Here's your money briefing from Monday, December 16th. I'm J.R. Whelan at The Wall Street Journal in New York. U.K. Prime Minister Boris Johnson won last week's election on the promise of a quick exit from the European Union. A London-based asset strategist will explain why Brexit won't be completed as quickly as many people think it will and how investors can capitalize on that. First, some money in market news you should know. It might be safe to go back in the water. Earlier this year, investors piled into so-called haven assets like gold, the Japanese yen, and dividend-paying stocks.
How did recent safe-haven asset moves signal changing investor risk appetite?
They were seen as a way to hedge against worries over a wave of global issues, like fears of a slowdown in growth, an ongoing trade war with China, and uncertainty over Brexit. But as fears have waned over the past several weeks, the prices of these safe destinations have declined. The U.S. dollar and Japanese yen have drifted lower, silver is off nearly 15% from its September peak, and utility stocks are among the S&P 500's worst-performing sectors. But investors don't feel they're fully out of the woods yet, at least when it comes to gold. Even though prices have fallen around $85 from September's six-year high, they've still registered a roughly 20% gain this year.
The timeline for the UK's exit from the European Union became more clear following last week's general elections, when Prime Minister Boris Johnson won a decisive victory, winning a majority of 80 seats in Parliament. But how could investors make money off of Brexit?
How did the December election outcome clarify the Brexit timeline?
And how much room does the British economy have to grow? PICTE Asset Management Senior Multi-Asset Strategist Richard Diaz joins us to discuss. So Richard, before the UK actually exits the European Union, there are several steps that have to be taken that the markets will be watching very closely.
Well, yeah, I think there are two kind of important milestones that need to be taken. And I think that first, just to be clear, is January 31st, which is the deadline that Boris set before the election. Obviously, the withdrawal agreement can now be passed given the majority. And then they have a year to negotiate a trade deal with the EU.
What milestones must occur before the UK fully exits the EU and why do they matter?
Obviously, that can be bumpy. There's some worries about given the fact the majority is so strong for the Conservative Party that Boris will opt for a hard Brexit. But I actually think that the opposite is true. I think that given the strength of the majority, I think that the more Europhile factions of the Conservative Party do not have to appease the ERG, the European Research Group. And I think we'll actually get a softer Brexit than I think many of Boris's critics would care to admit.
European markets and global markets have been a little wary of a hard Brexit, a rapid departure from the European Union. You're saying that the markets might be somewhat pleasantly surprised?
There's two things on this. Number one, I think we kind of figured that out in August when the pound bottomed. And I think we need to trust the markets somewhat. And they're telling us something. They're signaling to us what I think is the collective wisdom, and that's that it wasn't going to be so bad after all. But also I think something, another angle that I think people don't spend enough time thinking about is everyone thinks of Brexit as a UK problem. But I think Brexit as a European problem, and I think for US investors and Japanese investors, et cetera, I think they were unwilling to even touch European assets. so long as Brexit was constantly on the headlines. And if you plot, for example, cable with euro area bank stocks, there's been a one-to-one correlation for the whole year, which is remarkable.
You don't think of euro area banks as a Brexit issue, but remarkably, it's really tough to see it otherwise when you look at those two indexes together.
So investors might see some upside in European assets?
I think they already have.
Why might markets be pleasantly surprised by a softer Brexit outcome?
I think if you look at M&A and mergers and acquisitions, volumes are now at the highest they've been and values are catching up.
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Chapters
7 chapters
1
What immediate market context frames the Brexit investment discussion?
0:05–0:38
2
How did recent safe-haven asset moves signal changing investor risk appetite?
0:38–1:38
3
How did the December election outcome clarify the Brexit timeline?
1:38–2:21
4
What milestones must occur before the UK fully exits the EU and why do they matter?
2:21–4:07
5
Why might markets be pleasantly surprised by a softer Brexit outcome?
4:07–5:18
6
What domestic UK economic indicators suggest room for growth after Brexit?
5:18–7:03
7
How should investors gain exposure to UK recovery — FTSE 100, FTSE 250, or specific sectors?
7:03–8:33
Speakers
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