World stock markets continue to be volatile as usual.
The UK people have recently decided to exit the European Union (EU) which will take 1-2 years minimum to execute. Until then, the government and the private sector must find ways to ensure a smooth transition (assuming the referendum is not overturned somehow wherein Brexit will no longer be a “fear”). Trade deals between the UK and other countries needs to be renewed or altered or maintained at status quo to preserve mutually beneficial trade between countries.
We are of the layman-opinion that, in the longer term (5-10years), UK will benefit from improved independent policy making power befitting domestic economic health. In the shorter term, issues of contention would be tax related matters, foreign labour, trade deals primarily among neighbouring EU countries amongst others. As being one of the stronger slices of the EU pie, an exit may cause a negative impact upon the weaker slices of pie within the EU (however to what extent is variable).
On the upper hand, UK’s economy is 73% services base, UK is the 5th largest developed economy in the world in terms of nominal GDP and is 1 of the 2 world’s largest financial centre. One would expect the world to continue to invest in the UK.
Unless you have daily Foreign Exchange temporary issues, this quote below should serve a Brexit Fear Guide, by the largest shareholder, Chairman & CEO of Berkshire Hathaway (BRK.A, +1.07%, BRK.B, +1.31%), a $350bil market cap company:
“It wouldn’t change anything I did,”
“I wouldn’t sell the farm I own.
I wouldn’t sell the real estate I own.
I wouldn’t sell my house.
I wouldn’t buy a different kind of car.
And I certainly wouldn’t change my investment in businesses.
He also said:
But -- I hope they don’t do it.” “Anytime you put something together that required all the political will and all the different countries there’s going to be a great attempt to make it work but I think it has flaws in it,” he told the channel on May 2. “That doesn’t mean they are fatal flaws, but they’ll have to be addressed in some way or another in future years.”
In a nutshell, the UK is experiencing issues that require addressing and the Brexit referendum is possibly a start towards them. However, make no mistake that some companies will suffer from Brexit OR from sudden changes in government leadership/policies and it is your job as investors to ascertain the extent to which your business/stock is affected.
Despite so, if your business/stock is one such as Oldtown Bhd, a Malaysian coffeehouse franchise, you can be sure someone will be having their signature coffee and Nasi Lemak today & tomorrow & so on contributing towards your returns, and probably even talking about Brexit while at it rather than being affected by Brexit.
Stocks In View
For traders & for long term investors with better evaluation techniques;
Financial Stocks:
Credit Suisse Group AG - http://www.gurufocus.com/gurutrades/CS,
Barclays PLC - http://www.gurufocus.com/financials.php?symbol=BCS
Deutsche Bank AG - http://www.gurufocus.com/financials/DB
Bank of America Corporation - http://www.gurufocus.com/financials/BAC
Prudential PLC - http://www.gurufocus.com/stock/PUK
[Note: Most of the gurufocus.com links are traded on US stock exchanges (including ADRs). Within the pages you have other information including listings in other markets wherein upon opening the links, view on your Top Left above the name of the companies. Click on the name of other countries displayed i.e. Germany, Hong Kong for alternative market listings.]
[Definition: American Depositary Receipt or ADR: http://www.investopedia.com/terms/a/adr.asp]
As minor precautionary reminder; should there be a long recession due to the long term deleveraging cycle that is due, companies in general will be presumed to perform poorly, hence increasing the chances of default in banks' Non-Performing Loans (NPLs), affecting financial stocks whom will draw funds from shareholders in cases of liquidity constraints, in specific those banks whom are yet to have sufficient liquidity buffers (i.e. Basel 3).
That being said, we do not make decisions based on forecast but rather on specifics of a business i.e. nature of business. The reminder serves as a guide to know and to limit the downside to our investments.
Until next time, happy value investing.
[DISCLOSURE: The writer currently does no own any minority stake in mentioned stocks as of 30/06/2016 under his personal account. JR Capital LLP has no minority interest in mentioned stocks as of mentioned date.]
[DISCLAIMER: Everything stated in this blog is purely the opinion of the writer and any decision taken should be based on sound judgement with risks fully born by the decision maker. The writer shall bear no responsibility for any losses due to adherence of advices blogged by the writer or any commenters. Informational discrepancies are possible and will be corrected if any.]
