Weekly Newsletter dated July 14, 2016

Share this post

Three weeks after the Brexit vote we are still discussing the economic implications and the technical procedures of the next steps ahead of us.

What has happened so far?
The loudest Brexit supporters immediately dropped their major promises like reduce immigration or provide more funding to National Healthcare System by leaving the European Union. They behaved like rats leaving the sinking ship and obviously fooled British voters and democracy. Prime minister Cameron resigned sooner than expected. The new cabinet is preparing for upcoming challenges – mainly for handling the Brexit. As expected they are not in a hurry to trigger the 2-year period of negotiating terms for the leaving by formally applying it to the EU.

Meanwhile Frankfurt and Paris have been lobbying for London financial jobs, UK consumer sentiment has dropped to a 20-year low, companies put major investments at hold and real estate funds had to be frozen due to escaping investors.

What will happen next?

Currently it looks like there is no way back. New Prime Minster promised to take the vote serious and proceed on the way to exit. UK leaders will try to keep close ties to the EU and bargain good terms for a future cooperation. However the EU should be in a stronger position and there is little room to improve current trade terms. Thus at the end of many negotiations, campaigns and analysis of economic effects the UK (hopefully still in one piece) might wish to stay a EU member. Currently the only way for UK to EU membership seems to be applying for a new membership after exiting which will probably not improve their terms either.

What effects show markets?

As reported in our last newsletter the Brexit came as a big surprise. Accordingly stock markets and the British Pound dropped sharply. And as expected they have recovered again. There was a minor impact on US stocks – at no surprise. They have even reached new highs recently. The big surprise were UK stocks climbing to a new high of this year! See also our chart of the day comparing UK stock vs. US and EU index since Brexit vote. The winner is: UK stocks!

While UK Financials and Real Estate are still as low as -20% there are considerable gains for Industrials, Mining, Energy and Pharma sector. The reason can be found in the devaluation of the British Pound which provides a strong backwind for UK export industry. Calculated in US Dollar the UK stocks are still negative. On the other side of the coin the week Pound will cause some inflation by higher import prices. We bet the Bank of England will be happy to accept that.

How do we invest in this situation?

As expected our investments work very well in current markets. Accordingly we have created many new products and had six more early redemptions since our last newsletter. Erwin Lasshofer and his INNOVATIS take advantage of increased market volatility and exploit current opportunities for our clients. The easiest access to this investment service is our Managed Account with full service by INNOVATIS and full control by the client.