Britain’s vote to exit the political and economic trading block known as the European Union on June 23rd 2016, sent shock waves of disbelief, shock and fear rippling through the financial market over the past week.
The pound Sterling (GBP) plunged and 10% was wiped off the value of the London FTSE 100 intraday on Friday 24th June.
Every global market from the Tokyo Nikkei to the Hang Seng took the news badly plunging at least 7-9%. This would appear to be the end of the global economy in terms of technical analysis of the stock markets is concerned.
The market loves a crisis and the smart money realized that the economics and politics of the situation mean that short term this is a buying opportunity. But what does the smart money know?
- The strong weakness in the Pound Sterling is advantageous for exports. Which is good for business.
- The Prime Minister David Cameron is delaying the actual invocation of article 50 (the E.U. exit process) the longer this is delayed the more likely it will not happen.
- David Cameron will resign and there is a serious lack of real legitimate leaders to lead the country forward and no one willing to actually take the U.K. out of Europe.
- Still there is a belief that the U.K. will not exit what is still the worlds largest trading block from which they profit immensely. The ramifications of doing so are disastrous for Europe politically.
- The younger generation British want to stay, as do the Scottish and Northern Irish, this polarizes Britain’s generations.
- The margin of victory for Brexiteers was extremely slim and not a real majority
So, “Smart Money” gets back in the game, especially in the U.K.
Amazingly,the FTSE 100 is so far the only market to come out on top with a new high set this week not seen since October 2015.
There are two theories around why the recovery in the London FTSE 100 is so strong.
- The realization that a new Britain unleashed from the shackles of Europe will be a vibrant force in the world economy, negotiating trade deals, utilizing its global relations and recovering it’s status as an “open for business” world trading zone.
- The realization that politically the U.K. has no real competition for leadership and that eventually the decision will be made not to leave the E.U. The British are a multicultural, post religious society that value inclusion, partnership, political stability and free movement within Europe. Therefor, for stock market traders, the weak Pound represents a short term opportunity to capitalize on profit surges in U.K exporters.
Decide for yourself which is the reason why stocks have rebounded so well in the U.K. and also globally. It is probably short term, but the best scenario, in my humble opinion is that the U.K. wants to retain it’s sovereignty and avoid more political integration from Brussels, considering Belgium itself is not a role model for multicultural integration or even a well run country this is understandable. But turning your back completely on the E.U. is also not the answer as the non monetary benefits specifically culturally outweigh the negatives.
It’s not the end of the world.
However this ends, I know that despite what happens in the U.K, the U.S.A, has a “TRUMP” card that it might play. Now that will be a Bull Market to profit from.
I am a European (Englishman) living in Germany, married to a German, with two Dinglish children (Deutsch & English) living in Munich and I truly appreciate inclusion, other cultures and the power of markets to raise the poor from destitution. But markets cannot be allowed to run rampant. We are humans and we need to care for the welfare of all of our people.