by Marcus Turner-Jones
Ever since the UK controversially voted in favour of leaving the EU last June, Britain has been a centre of economic focus for traders and investors around the world – both in terms of the pound, and in terms of stocks and shares in UK businesses who will be impacted by Brexit. This was undoubtedly also going to cause ripples across the world, Singapore included.
Currency Down, Shares Up
When it was announced earlier this year that Brexit would be a ‘hard Brexit’, with the UK leaving the single market as well as the union, the pound gained some ground against the dollar but the share indices performed badly as a result – with shares in dollar earning UK currencies dipping.
In the wake of Monday’s announcement that Article 50 would be triggered on March 29th, the opposite effect occurred. The pound closed down 4% on the dollar, however both the FTSE 100 and the FTSE 250 closed at record highs. The FTSE 100, which is an index of UK blue chip companies, closed at 7,439.81 on Monday, which was a 0.07% increase for the day. The FTSE 250 closed at 19,151.80, up an impressive 0.3% that day.
Why Did This Announcement Bolster Share Prices?
For businesses, the whole saga of Brexit has been all about uncertainty and strategising against risk. The initial referendum introduced a situation where businesses had to have two possible future strategies – one for a Bremain vote and one for Brexit, but the Brexit one would of course be full of risk and uncertainty due to the fact it was never clear during the referendum what the terms and timescale for Brexit would be.
The announcement that Britain would leave the single market enabled businesses to refine the strategies they had for that eventuality, and identify the new risks they would have to consider. The parliamentary vote failing to block Article 50 also removed risk from those plans.
Now, with a date for the invocation of Article 50, businesses are able to move forward, knowing that things like WTO negotiations will be among the next steps, and they will be able to continue refining plans and approaches to reduce any negative impact from Brexit and also identify opportunities new trade agreements may present.
The fact that each step that clarifies Brexit enables businesses to work with less uncertainty allows investors greater assurance, and this is why faith in the markets grows even when things like Article 50, which the Bank of England has said will have more significant consequences than we have seen so far, can cause excellent performance for the share indices. Singaporean investors, those with business interests in Britain, shares in UK based companies and those that trade forex or commodities will already have a fairly good idea how 29th March might play out.
Whether that might be pulling your money out of the UK or taking advantage of the volatility that is likely to unfold, one thing is for certain, a weakened London, as some companies pull out, could mean even greater opportunities for Singapore to assure its position as the financial capital of the world.
Oil Still Sliding
The main exceptions to the high performance of the FTSE 100 last Monday were BP and Shell, whose prices both slid substantially. This is part of an ongoing decline in oil prices that has little to do with Brexit, and more to do with global concerns that OPEC are unable to effectively manage oil prices.
With measures taken involving restricting production in OPEC nations, the price of oil continues to fall, which may in the long term be problematic for Scotland, who are aiming to have a second referendum on leaving the UK.
This can undoubtedly be attributed to Brexit, but as a whole we continue to see exponential growth since the beginning of the year, how exactly this will pan out long term is impossible to say, but things certainly look to be taking a turn for the worse.