The ramifications of BREXIT on economies and financial markets discussed during BOV's eTrader+ Investor Clinic
Brexit - from Black Swan to Grey Rhino was the title of this year's eTrader+ Investor Clinic organised by Bank of Valletta on Thursday, March 7.
The evening conference specifically focused on the possible consequences on financial and foreign exchange markets impending the United Kingdom's exit from the European Union.
Welcoming the participants, David Pace Ross, Senior Manager at Bank of Valletta highlighted the political options that the UK parliament was facing over the next few weeks.
Pace Ross said that "the UK parliament was now caught in a Mexican standoff between a hard Brexit, Theresa May's negotiated Brexit or no Brexit at all. This political decision will have long lasting economic and financial ramifications mainly to the UK and to varying degrees, the rest of the world".
Keynote speaker Christopher Dembik, Head of Macroeconomic Analysis at Saxo Bank, provided a deep insight on the economic trends which are already effecting the British and the European economies.
Dembik stated that more pain was in store for UK assets, especially listed companies that are heavily dependent on their local market in terms of revenue, as UK consumption is slowing and household stress in Britain is increasing sharply.
Dembik commented that "political risk will remain a key issue. We consider Brexit, from a macroeconomic level, to be mostly a British problem with risk of contagion close to zero", adding further that "the probability of a delayed Brexit and a new referendum are high but our main worry is the lack of new credit growth, which is the UK's top issue for medium and long-term macroeconomic outlook."
He concluded by pointing out that the probability of a delayed Brexit and a new referendum are high.
Participating in the panel discussion moderated by Mark Scicluna Bartoli, executive, EU & Institutional Affairs, Bank of Valletta, were panellists Steve Ellul, Head, BOV Asset Management and Matthew Farrugia, economist at BOV Wealth Management.
The panel members discussed that investors should be aware of the risks that their investment portfolios carry as the uncertainties of Brexit keep on fluctuating with the political decision and economic reviews that occur on a daily basis. High volatility in the FX market is expected to continue could impact portfolios which are skewed toward the British economy or the Pound Sterling.
When asked about how advisors were structuring individual clients' portfolios in context vis-à-vis Brexit, Matthew Farrugia said that one had to first consider how best to reflect the spirit of the client. He said that clients ranged in temperament from cautious to speculative - generally though the preference was to avoid the region outright. He added that some clients simply have a portfolio denominated in GBP, such that avoidance was not an option. In such a case, large-cap exporters were preferred which would gain from Sterling weakness. Another strategy was to invest in other regions, using GBP-hedged ETFs as a means of mitigating exchange rate risk.
Steve Ellul argued that Brexit is essentially a political event, which is having an impact in economies and financial markets, albeit to a lesser degree than originally anticipated. He argued that corporate and institutional investors are hedging their risks by mitigating exposures to the pound sterling and UK domestic assets.
Ellul also mentioned that many local corporates, particularly in the tourism sector, have in recent years diversified their dependency away from the UK market. This, along with some proactive initiatives organised by Malta Enterprise, are helping Maltese entities to weather potential negative repercussions emanating from Brexit.
Wrapping up the discussion Mark Scicluna Bartoli noted that "the 14th of March vote in the House of Common's to delay a hard Brexit provides a breather, however to extend Article 50 to just kick the can down the road will not provide solutions to the current impasse."