BREXIT effect on world economy

Q&ACategory: QuestionsBREXIT effect on world economy
Jeremy Hiew asked 8 years ago

Hi PC,
As we know now that the majority of British people voted for BREXIT, does it affect Malaysia or world economy as a whole (in short/long term)? It because there are some Malaysia companies invest in UK like REIT & energy sector.
In fact, recent news had reported that Japan had shown its concern on this issue, and BOJ will find ways to reduce the effect of BREXIT in their country.
What do you think about this issue?
Thank you

1 Answers
pcwong Staff answered 8 years ago

In the short term BREXIT will cause a panic selling due to unwinding of carry trades, derivatives and margin calls. So the Malaysia stock market could see similar sell off albeit being less compared to the EU countries.
But the result of BREXIT could unravel several European banks such as Deutsche Bank, the Italian banks which have 360 billion euros of NPLs and Spanish banks. Because all banks have counter parties claim against each other it could create another global financial crisis.And this time it will be worse than before as central banks have run out of ammunition.
Western REITs should be avoided as the laws of the incorporation did not cover the level of gearing unlike those in Malaysia, HK and Singapore where there are regulations on the level of gearing. These would be the safe bets. .  
I would also stay out of the energy sector as oil price is collapsing once again.
The BOJ has wasted billions propping up the Nikkei until it became the top ten holder in 90% of the Nikkei stocks and now we see the Nikkei falling 1,200 points. So all the money has gone to waste.I would avoid Japan too.
You can see that after the initial sell off in the Pound and UK stocks, recovery took place later in the afternoon and the FTSE and Pound regained back some strength. I will look at a much lower Pound before entry into UK REITs. I believe Britain has won against the globalists and in due time it will redeem herself and becomre a stronger country. BREXIT is not the end of Britain. It is  the beginning of a Greater Britain. Look at Switzerland. it is thriving even though it is not part of the EU. It is also a country with the highest number of millionaires per population in the world. The other being Singapore.
So I will be looking at a lower entry point in UK REITs so that in the longer term I gain both in value of the share a swell as FOREX gains. But certainly, now is not the time to enter. We need to allow events to play out.
In the meantime, the only play that could see good returns are precious metals, miners and ETFs that short the indices or those that short the financials.
Hope this helps.