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Brexit: Why the Market Got it Wrong



Dear Speculators,

After 40 years of being in the European Union, the United Kingdom will no longer be a member nation of the EU after the exit plans have been finalized. The gloomy market prediction by top notch investors and analysts has now become a reality. The British pound has been "pounded" in the foreign exchange market, falling significantly against virtually every currency on earth. Pound sterling currently sits at a 30 year low against the dollar after shedding a record 11% in just one day. The equity market is a mess all over UK and Europe, banks have suffered the heaviest beating. $2 trillion has been wiped off global equities. At this point it will take a miracle and much more than $345b promised by the Central Bank to save the economy from entering a financial  recession by 2017.

Several market players were positioned for a stay in accordance with the opinion polls on Brexit even when the polls showed that a vote to remain wasn't significantly higher than a vote to exit the EU. Smart money became stupid money after Britain opted out. In a bid to re-position their bets, it sparked a sell off. Some investors made a profit windfall by betting against the herd. Since Britain to stay was already priced into most assets, it was only common sense to bet otherwise as only little profit will be made by following the market if Brexit failed.

We believe that current market volatility reflects only the best guess of speculators since the terms of the exit process have not being stated. Time to look into Article 50 of EU laws. UK has 2 years to negotiate an exit plan with Europe. We believe changes in the trade laws may not be as significant as most fear. While we anticipate minimal downgrade of revenue growth forecast for European firms in the short term, real portfolio adjustments will be made to reflect the prevailing economic conditions after the exit has been finalized. In the mean time, let the speculation begin!

PS: This is nothing like Black Wednesday of 92, currency devaluation is way different from abandoning an economic union.


Emeka Ucheaga,
Managing Partner,
Emeka Ucheaga Advisory
+2348137532722
emekaucheaga@gmail.com  

Comments

  1. Unknown26 June 2016 at 09:10

    nice nice

    ReplyDelete
  2. Unknown26 June 2016 at 17:53

    Nice!!! What can you say about the future of the EU, with the eurozone crisis not fully solved, with an added Brexit.

    ReplyDelete
  3. Unknown26 June 2016 at 17:53

    Nice!!! What can you say about the future of the EU, with the eurozone crisis not fully solved, with an added Brexit.

    ReplyDelete
  4. Emeka Ucheaga Advisory29 June 2016 at 09:07

    Thank you. The future of the EU is currently uncertain. The imploding debt level of several member nations, slow economic growth and all the negativity of zero interest rate sends only negative signals about the future of the European economy. When you mix all these problems with a Brexit, it is anybody's guess how bad the future will be for the EU. We all have to wait for terms of the Brexit negotiation to shape our thoughts on the economic future of Britain and the rest of Europe.

    ReplyDelete

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