As the reality of Brexit sweeps the world, global markets are taking a beating. Regrettably, the left-wing faction controlling the media in America has declared Brexit a catastrophe. “Isolationist catastrophy” says the LA times says, “terrifying” says the Washington Post… It’s hard to comprehend why the media would treat the will of a clear majority of the British people as a mockery or sham. What it is, is a democracy. The renowned Brit, Paul Weller, said, “the public gets what the public wants.”
What is so wrong with that? Why is the media so against free will?
Britain is going to come out from Brexit an economic powerhouse, with the ability to come out from the shadow of constantly underperforming Continental economies like Spain and/or Greece, and enjoy the full benefits of having the fifth-largest economy in the world. It is much easier to do business in Britain compared to say Italy, France or Germany.
In an nutshell, you want to belong to Britain, just not right now. The London Stock Exchange going to have a Black Friday and it’s not going to be much better in New York looking at the futures; however, sooner or later a bottom will form.
The referendum will incite British Prime Minister David Cameron to begin the 2-year progression of exiting the European Union. He will not be in power at the end of the 2-years, but your portfolio will still be there. As we progress through summer, you should be on the lookout for attractive entry points to that will allow you to increase your exposure to British equities.
The weak pound, which fell below the lows of 1985 vs. the dollar in Thursday’s overnight trading, making dollar-based U.K. investing much more economical, making for handsome British multinationals’ earnings when presented in sterling terms.
So, here is my “Best of British” watch list of UK stocks as they are sold off in panic on the global markets and get ready to find them at even lower prices late summer.
By market capitalization BP Shell and Royal Dutch Shell are the largest UK stocks and BP is number 4. Post-Brexit, oil futures plunged, but, realistic, everything but government bonds and gold are likely to do that. The focus should be that over the long term both of these companies are well-positioned to be able to take advantage of the growing needs for oil and natural gas around the world.
The deep drop in oil prices led to many projects being delayed and in some situations canceled. The next leg up in oil is going to be massive. I can’t forecast precisely when oil will hit 100 dollars per barrel again, but the under-investment of the last 2-years pretty much guarantees that it will.
Rio Tinto and BHP Billiton, respectively, the 20th and 26th largest companies in the FTSE index, with operations around the world. Those far reaching profits are going to look good translated into weaker pounds. As well, the failure of China’s economic revitalization has been significantly overstated. China and India will keep needing huge amounts of imported iron ore and coal for the foreseeable future. That’s a tailwind for BHP and Rio Tinto, both of there were not popular with the markets even prior to Brexit.
The 11th largest company in the FTSE, Diageo’s brands include Tanqueray, Guinness, Captain Morgan, Johnnie Walker and Smirnoff. Diageo makes profits in varied geographies. Europe including Turkey and Russia only represent 16.5% of Diageo’s reported sales for the last half of the year. Diageo’s last earnings report was peppered with references to ‘adverse exchange,’ but the currency headwind just turned into a tailwind because of Brexit.
What do you think about all this Brexit hysteria? You might consult our Brexit overview for a Forex trader to learn the details you could have missed. Do you remember how gold prices has surged due to Brexit? Prepare to take advantage of this situation and make some good profits.