There is a lot of talk about about the potential of a British exit from the European Union.
What-ever the outcome of the June 23rd referendum, the consensus is that the British pound will continue to weaken both against the EUR and USD.
There is a real concern that this will uncouple the world’s fifth-largest economy from its biggest market.
According to the Economist, EU takes almost half Britain’s exports, whereas Britain takes less than 10% of the EU’s.
Expect more volatility in the Pound
According to Goldman Sachs, Eshe Nelson the “pound doesn’t have much scope to gain going forward”. Read the full interview
The pound recently dropped below $1.39 for the first time in nearly seven years, with analysts at HSBC warning that the the pound could drop at a “fast and furious” pace if the UK voted to leave the EU.
There is the highest expectation of pound depreciation against the Euro since immediately before the Scottish referendum.
How likely is an exit?
Although the odds are currently against an exit, it still presents tail risk for equity investors that can’t be ignored.
But London is 9078 km away from my portfolio?
Unfortunately global financial markets are interconnected. There are several shares that trade on the JSE that earn their revenues predominately in GBP.
Bloomberg identified several South African shares which will be directly affected by a falling pound.
Netcare (NTC): General Healthcare Group, owned by Netcare, is the largest private acute care hospital provider in the UK. A key contributor to Netcare’s revenue, this could face severe erosion on Pound weakness.
Brait (BAT): With more than ¾ of its investments focussed on the UK, Brait would see a Brexit as a key risk to its portfolio.
Capital and Counties (CCO): The property company is focused entirely on London within a high quality concentrated portfolio. A Brexit would not only lead to a weaker pound but also a flight of tenants from the financial node – but more of this later.
Investec Plc: The specialist Bank derives 30% of its operating profit and 40% of its assets from the UK leaving it highly exposed to the fluctuations in the Pound.
Brexit causes jitters…but their London estates are crown jewel assets.
According to Anthony Clark, Vunani Securities:
“The 25% weakness in the share price on ‘Brexit’ short-term issues should seen as ‘white noise’. Capco owns two of the best estates in Central London, and London has been the destination choice for international residents and investors for decades and probably won’t ever change anytime soon.”
“… investors which have sold Capco off by a quarter in the past months as the political uncertainty over the UK’s vote to stay or leave the European Union (‘Brexit’) and the London mayoral elections where the business friendly present Mayor Boris Johnson many be replaced by a less ‘friendly’ candidate….has hit Cacpo.”
” … these short term movements are meaningless and the sharp fall in the share price should be seen as a great long-term opportunity.”
I agree with Anthony, and we are looking to accumulate around the R70.00 level.
As there are several trading options, I am more than happy to discuss my thoughts on Brexit, or chat generally about offshore trading. All you need to do is send me a mail.
Here’s to profitable investing,
Head of Asset Management| Vunani Private Clients
PS: If you’re looking to start investing have a look at our flagship portfolios.