Home Investing Brexit: What it Could Mean for a Prospecting Passive Kenyan Investor?

Brexit: What it Could Mean for a Prospecting Passive Kenyan Investor?


Many of us are anxiously waiting in preparation for the EU Referendum to be held on June 23rd, 2016 – waiting to see what possibilities and opportunities will come with it. Currency markets  are unsettled and  are responding frantically to the the fresh poll results being released in anticipation of the D-day with Speculators busy trying to anticipate the outcome.

If you have not been following these events, this is what is likely to happen in the coming weeks and months.

[vc_custom_heading text=”FACTS: Since Brexit Announcement Market Response” font_container=”tag:h3|text_align:left” use_theme_fonts=”yes”]

♣ In the last month, the Sterling Pound has risen from €1.26 nearly peaking at €1.32, only to later drop to €1.25 against the euro.

♣ UK stock market has gone on a free fall this last few weeks but was previously steadily rising since the announcement of the Brexit – FTSE index of Britain’s top 100 companies risen from 5500 on 11 February to now hovering at 6096 only to drop to 5924 last week.

♣Many UK investors are taking the cautionary route opting for lower-risk investments, pointing to the uncertainties triggered by the EU referendum as their reason.

[vc_round_chart type=”doughnut” style=”custom” stroke_width=”2″ values=”%5B%7B%22title%22%3A%2251.4%25%20Exports%20to%20the%20EU%22%2C%22value%22%3A%2251.4%25%22%2C%22color%22%3A%22blue%22%2C%22custom_color%22%3A%22%23002e5b%22%7D%2C%7B%22title%22%3A%226.6%25%20Imports%20from%20the%20EU%22%2C%22value%22%3A%226.6%25%22%2C%22color%22%3A%22pink%22%2C%22custom_color%22%3A%22%23fde428%22%7D%5D” title=”Britain’s Import & Exports to the EU (2014)”]
[vc_custom_heading text=”SPECULATION: Positive & Negative Hypothetical Scenarios” font_container=”tag:h3|text_align:left” use_theme_fonts=”yes”]

♠ The Sterling Pound will decline on Brexit mainly against the dollar, as the exit will be seen as damaging to the Euro as well. The Treasury’s worst case scenario forecasts is a 15pc drop in value for the pound.

♠ “Brexit threatens to cause ‘severe global damage'”, warns IMF

♠  JLL research  showed that both international and domestic UK based property companies think that Brexit will lead to job losses and head office closures, particularly in the capital.

♠ According to an analyst at Goldman Sachs, the Sterling will fall by 20pc while stock markets are likely to slide up to 30pc.

♠ The UK stock market is said to be dominated by very large international companies whose performance is not closely linked to domestic UK issues.

[vc_round_chart type=”doughnut” style=”custom” stroke_width=”2″ stroke_color=”custom” values=”%5B%7B%22title%22%3A%2252%25%20Leave%20Vote%22%2C%22value%22%3A%2252%25%22%2C%22color%22%3A%22blue%22%2C%22custom_color%22%3A%22%23002e5b%22%7D%2C%7B%22title%22%3A%2248%25%20Remain%20Vote%22%2C%22value%22%3A%2248%25%22%2C%22color%22%3A%22pink%22%2C%22custom_color%22%3A%22%23fde428%22%7D%5D” title=” EU Referendum’s Polls & Odds”]

Results as at 15th June, 2016 with a 6/4 odd of a leave vote

In order to not lose out on this volatility, many are asking: When should I buy and how do I minimize the likelihood of missing out on a better rate?

Markets do not like uncertainty as there are real risks involved, but with uncertainty, market volatility leads to real opportunities as well.  Therefore, what are the real risks and opportunities? One Exit, these are some of the opportunities likely to crop-up.

1. Impact on Paper Assets

Bonds, savings and pensions held in Sterling may shrink  in light of a Brexit. A Brexit is likely to cause a fall in the sterling pound placing at risk investments made in the UK in Sterling.

Moving forward, it would be wise to wait and see what happens for two reasons:

a. There are some speculations of an interest rate hike in the event of exit if your planning to invest in Sterling paper assets.

b. Investment ratings may be reassigned to a negative outlook due to the likely  shift in the economic landscape in the short-term that may possibility dampened export to the EU playing a big role in investors decision making confidence.

2. Real Estate Market Investors

On Brexit, property prices within the UK will fall as a result of the Sterling fall and cause a jolt in the commercial and residential property sector, according to the international real estate group. Due to the current high property values within the UK, investors are eagerly waiting with large cash reserves to react to this ‘price correction’ on exit. Therefore, it would be a good time to buy on exit.

3. Stock Market Movement

On exit, for some time a lot may change in the business landscape as Government and Private Sector stakeholders seek to renegotiate trade agreements and have normalcy again with the EU. However, with a remain, the Sterling gain would damage any foreign earnings made by UK Companies and losses would be realized by UK International holders of International equities and funds.

Therefore, many investors at a time like this tend to favor proven businesses that can handle crisis hence it would be wise to always look for companies that thrive in the face of market turmoil. There is a lot that could happen but what is for sure is that a leave or stay vote could leave the UK Equity market polarized as there would be gainers and losers with either decision.

When all the money is made on speculation what will be the future of the UK. Brexit bounce would be followed by a period of uncertainty as the Government and Private Sector Organizations renegotiate trade agreements and even if they remain, things will remain challenging.

Happy Investing!

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