Market Bites: Brexit starts to Bite

Market Bites: Brexit starts to Bite June 14, 2016

Sun (Rupert Murdoch) gets in behind Leave campaign

"Remain campaign has been ‘beneath the dignity of Britain,’ the UK’s top-selling tabloid says"

Why Leave – one of the better cases made
As written by UK Journalist/Economist, Ambrose Evans-Pritchard, in the AFR today – HERE

Who is getting beaten up today on the ASX?

Numbers, according to Merrill Lynch (note the ASX200 closed -2.06% as a reference point), – of 28 Asian companies that have material exposure to the UK – defined as generating at least 15% of their revenue from Britain – the Australian names are (with % of UK revenue and today's movement)

CYBG Plc. (CYB.Australia) gets 100% of revenue in the UK DOWN TODAY -5.18%
BT Investment (BTT.Australia), 63% DOWN TODAY -6.12%
Henderson Group (HGG.Australia), 61% DOWN TODAY -6.21%
Westfield Corp. (WFD.Australia), 36% – UP +0.28%
Iress (IRE.Australia), 34% – DOWN TODAY -1.72%
QBE Insurance (QBE.Australia), 30% – DOWN TODAY -3.26%
Sims Metal Management (SGM.Australia), 16% DOWN TODAY -0.12%
Macquarie Group (MQG.Australia), 15% – DOWN TODAY -2.11%
Goodman Group (GMG.Australia), 15% – DOWN TODAY -3.03%
Computershare (CPU.Australia), 15% – DOWN TODAY -1.67%
SAI Global (SAI.Australia), 15% UP 0.6%

Is the BREXIT concern enough to delay the FED in raising rates – yes probably !

Remember that the FED was meant to squeeze in 2 rate increases this year, which is quickly disappearing.

Also a leave vote will take a long time to negotiate and happen – From Henderson Management recently

"With the referendum scheduled for 23 June, HGG management feel there will be a further ~2 years of negotiation relating to structure, with another ~5-10 years before full implementation. Accordingly, HGG management have not yet implemented contingency plans."

Sterling (GB£) the natural hedge.

We can own GBP via simple long ETF''s.

From Longview Economics: –

"Sterling is the most direct hedge against BREXIT. The GB£, though, hasn’t moved that dramatically in recent weeks (i.e. still above its Feb lows – FIG 1a). That perhaps reflects its proximity to long term support levels (FIG 1b). The US$1.37 to 1.42 level has offered technical support for the GB£ on a number of occasions including shortly after sterling fell out of the ERM in October ‘92. Only in the sterling sell-off in early 1985 did the pound go below those levels (reaching 1.04 in Feb ’85). Other sterling related assets, though, are now pricing in high levels of concern re: BREXIT. Implied ‘at the money’ (atm) GBP-US$ currency volatility has risen sharply in recent weeks. The 1 month atm volatility is close to its 2008 sterling crash highs; the 3 month volatility has also risen sharply (FIGs 1d & 1e)."