Investors are People in Arts

Investors are People in Arts

As the module is slowly coming to a close random thoughts of what I have learned so far come to my mind. Finance is like a canvas and investors are painters. Whistleblowing, insider dealing, ethics, valuation models, market efficiency, capital structure are just some of the colors they use which all contribute each one in a unique way to create a perfect (?) balance that lies on thread waiting an event to change this balance in an unforeseen a way. On this blog we are going to discuss about such an event, the Brexit.

It is stated that Britain will leave the EU by the end of March 2009.

The value of the pound has dropped its value compared to other currencies, which had a negative effect to the imports. Consequently, inflation has been noted pushing the prices of basic goods to go up and economic growth to slow.  However, it has been beneficial to the exports and to the blue chip companies of the FTSE 100. In more detail, the fact that the pound has reached its lowest level in 31 years against the dollar has created great deals for the companies. Firstly, Qatar Airways increased their share in the parent company of British Airways. Moreover, the firm that owns AMC Entertainment has bought a cinema chain based in UK. Lastly, Google and Apple are building new headquarters in London while automakers like Nissan and Toyota have promised to invest in their facilities in England. Lastly, analysts state that UK should merely focus its exports to emerging markets like Malaysia and Bangladesh. It should not rely only on its current adequate demand for British goods as many current trading partners such as South Korea are predicted to lose their economic strength.

A crucial factor which affects the British Economy is the feeling of uncertainty in the air. It is estimated that more than 10,000 jobs will be moved away from Britain. The sector that is taking the biggest hit is the pharmaceutical sector. To be more precise, the Europe’s drugs regulator will move its facilities from London to Amsterdam and with it the 900 staff currently working there. Moreover, unless an agreement is reached between UK and EU, UK-based pharmaceutical companies will have to duplicate their facilities in order for their products to be sold in the rest of Europe. We must point out that UK-based companies are responsible for the supply of almost 45 million of drugs to the EU.

Nevertheless what must be noted is that analysts suggest that although the first weeks of uncertainty, the markets, since the Mrs. May’s Lancaster House speech, have been appeased.

When it comes to the business sector, although the majority of the employers in a survey stated that they will continue to increase their workforce, nearly two thirds believe that their sector will become a less attractive investment for lenders over the next 5 years. Moreover, Brexit would also mean minimizing the number of immigrant low skilled workers. This fact would struck sectors which rely on these employees such as the agricultural, hospitality and manufacturing.

Lastly, in the financial sector not only the UK can be harmed by a Brexit but also the whole EU. Firstly, in order for the UK investors to access the EU markets they would have to comply with much more regulation, thus increasing the transaction costs. Secondly, the EU need UK as it offers liquidity, capital and finance. By not finding a solution to Brexit,” legal walls could be built between UK and EU –as a consequence of these so called passport rights”. Thus subsidiaries would have to be created as companies like Deutsche Bank connect more than 60 per cent of their revenue with the transactions occurred in London. In addition to that, when it comes for UK Banks transactions will have to be routed through subsidiaries in the rest of Europe-which is significantly costly- in order to keep their clients’ business unaffected. Lastly, it is estimated that more than 75,000 jobs will be lost in this sector

To conclude, what must be underlined is that in this blog we only scratched the tip of the iceberg called ‘’Brexit”. Whether investors should put their money in the British firms or pull as quickly they can is matter of further investigation. All we can say is that Britain is case of a country “too big to fail”, thus the strategy of Brexit should be carefully scrutinized.

Until next time stay safe.