Financial Implications of the Brexit

[brian.field]

Dear Brian , I have tried my best to avoid political discussions (that was my first rule in this thread) and have kept it purely for Finance. By the way, did you check out the earlier posts on my short and medium term strategies? What do you feel?

Absolutely @QuantMan2318 - I should have mentioned that I think we are doing really well "NOT" moving into a political discussion.... It is difficult to say the least.

 

[Dr. Jayanthi Sankaran]

Hi @brian.field,

Thanks for the Moody's posting on the Brexit webinar. Will most definitely register

Jayanthi

 

[brian.field]

Absolutely @QuantMan2318 - I should have mentioned that I think we are doing really well "NOT" moving into a political discussion.... It is difficult to say the least.

...and of course I read your earlier posts @QuantMan2318 - I have not had a chance to offer my thoughts. I will try to do so when I have a moment. Thanks!

 

[QuantMan2318]

Lots of other interesting developments!

It seems that there were some funds that shorted the Pound and went long on the Yen and invested in Japanese Govt. Bonds prior to this calamity. They seem to have earned a return in excess of 10.4% http://www.bloomberg.com/news/artic...ped-one-hedge-fund-make-10-5-amid-record-drop Seems that Soros who broke the Bank of England with his 'Big Short' on the Pound didn't make it this time

It seems that many resourceful traders went long on the VIX futures prior to the Brexit and reaped huge gains. See the spike in the VIX on Brexit, the fear gauge is the best indicator of Black Swans! http://www.bloomberg.com/news/artic...-in-u-s-stocks-as-puts-explode-vix-takes-dive

Horror of horrors, S&P strips GB of its prized Triple A rating, resulting in increased spreads and spikes to the yield of UK Gilts albeit for a temp. duration, however, as investors still flock to the safety of govt. bonds, the net effect would be minimal. A trader can very well profit from shorting the Bonds/Bond index when the yields were low in the aftermath of the crisis and closing the short when the yields spiked. http://www.bloomberg.com/quote/BRIT:IND, the opposite of the current trend towards investing in Govt.Bonds when yields are still falling for the sake of safety.

 

[QuantMan2318]

Here is a short video from the WSJ on Asian companies and the Brexit
http://www.wsj.com/video/how-brexit...ers/7EDAB731-CE24-4006-9C37-F5BD8AF9F144.html

They forgot Tata Group, which owns Jaguar Land Rover as well as Tata Steel with its significant UK assets and Export Market in continental Europe

As an aside, the Machines seem to have won this time, as models seem to have factored in the Risk and invested in the safe haven Assets as mentioned in the earlier posts. http://www.wsj.com/articles/in-brexit-trading-machine-beats-man-1467158146?mod=e2li

Research by Wells Fargo on the Brexit. https://www.wellsfargo.com/com/insights/economics/special-reports, if you want you may have a replay of their con-call

Lots of takeaways

1. Temporary hit to UK GDP, mild recession likely?
2. Reduction in Gross Fixed Capital Formation
3. Reduction in employment across various sectors; reduction in Financial sector employment likely
4. Alternative Financial Hubs: see the interesting speech by Mr. Mateo Renzi, Prime Minister of Italy

And @David Harper CFA FRM , can we close this thread or shall it remain open, now that markets have calmed a bit?

 

[Dr. Jayanthi Sankaran]

Just missed the Webinar Brian. Did you attend? How was it? Have asked them to send me a link to the webinar or a pdf file....

Thanks!
Jayanthi

 

[QuantMan2318]

Well Jayanthi, it was good, in that there were a lot of economic indicators discussed. There will be a video recording of the webinar sent to all the participants, I will send you the link once it becomes available

 

[QuantMan2318]

Thanks @brian.field would not have known about it if not for you. Got the seat by the skin of my teeth. Seems that there were 5,000 registrations and I was on the waitlist. Finally, they consented for me to attend the same.

 

[Dr. Jayanthi Sankaran]

Thanks Brian - appreciate it

 

[brian.field]

My pleasure - I wasn't able to participate either but will do so with the replay.

 

[Dr. Jayanthi Sankaran]

Thanks @QuantMan2318 - momentary confusion Thought it was Brian who attended the Moody's webinar!

Jayanthi

 

[Dr. Jayanthi Sankaran]

Hi @QuantMan2318 and Brian,

Will be attending a seminar on Brexit and its consequences for India, EU, US and SAARC nations. It is being held tomorrow in Chennai (where I live!) by the Madras Management Association...the Chairman happens to be the Head of ICRA - a top-notch rating agency in India. I believe SAARC nations together with India are actually thinking of creating a new currency..of course with the usual 'yay' and 'nay'..should be interesting. Will provide feedback..

Thanks
Jayanthi

 

[Dr. Jayanthi Sankaran]

The major takeaway's from yesterday's seminar on the 'Impact of Brexit on India' were:

(1) Although the rupee slid on June 24th to Rs 68.27/dollar, down 1.5% from its previous close on June 23rd, it quickly regained ground and strengthened to Rs 67.96/dollar
(2) India will not be affected by Brexit in the days to come because its fundamentals are sound, it has low short term external debt and sizeable foreign exchange reserves
(3) Although Indian exports to the UK have contracted over the past 18 months, that is because of global slowing down
(4) Imports from Britain especially in the food, drinks and technology sectors will be cheap (cheese, wine etc.). This will aid small and medium enterprises
(5) India can now negotiate separately with the UK and the EU on Trade agreements. Earlier, UK and EU were blocking each other
(6) India is a major investor in the UK due to historical and cultural reasons. Both Tata Jaguar and Tetley Tea are major corporations that provide employment to hundred's of thousands
(7) India is a relatively bright spot in the global economy because its growth rate is projected at 7.6% of GDP for 2015-2016 and an inflation of 5.7%

I will post more info as I keep reading and get the link from yesterday's seminar.

Thanks

 

[Dr. Jayanthi Sankaran]

The video link to the Seminar on Brexit, India, Europe and the World is below:

www.liveibc.com/mma

Thanks

 

[QuantMan2318]

Hi there @Dr. Jayanthi Sankaran , in addition to your useful information above, here is what Aswath Damodaran has to say on the Brexit.
http://aswathdamodaran.blogspot.in/2016/06/the-brexit-effect-looking-for-signals.html
As always he takes a middle path to its effects on companies

In addition to @David Harper CFA FRM's links on how other cities are vying to take London's crown, there were also some discussions on other cities that may very well attract the Financial Institutions and the Fintech industry ( I don't have the link at the moment, sorry), the various cities on the continent were ranked based on the transportation infrastructure, present existence of Financial services and English language adoption

Here is a sample based on what I read,

1. Amsterdam - Excellent infra and English adoption
2. Frankfurt - German Capital of Finance, with beautiful infrastructure, lacking only in English
3. Paris
4. Dublin, of all places because of being in Ireland and close to the UK and surprise, high English language adoption
5. Milan

 

[Dr. Jayanthi Sankaran]

I will look up Damodaran's link. I have been to Frankfurt and Paris. The former has an excellent infrastructure esp with the autobahn. It is very clean and the German's in general are highly professional and punctual. I have met some from the financial industry...the only challenge which is not actually one (IMO) is that they tend to speak in German, initially. Since I know a little bit of German and have an aptitude for it (love the language because it is very similar to Sanskrit which I know somewhat, having studied it as third language in my schooling), whenever you strike a conversation in German, they are very happy and take the initiative to speak in English!

As far as Paris goes, it is indeed a beautiful city with the Seine river and full of museums (like the Louvre etc). However, language is a problem because the French (even if they know English) are too uppity! They expect you to speak in French. So, Paris IMO is not a great place for a hub.

As far as Amsterdam goes, although I have not been there, its proximity to Germany makes it very appealing as a hub. I have had a lot of Dutch friends in the US who speak pretty fluent English. They are pragmatic when it comes to English because they know that they will lose out if they are not open to speaking in English. So Amsterdam would be a great place for a hub. It is also a beautiful place full of canals. The Dutch are a very open lot compared to the Germans!

As far as Dublin goes, English is no problem. Also, it is close to London and would make a great hub. The Irish are a very friendly lot and cannot do without the pubs! I have had a lot of Irish friends from the financial industry in NYC. Also, my niece is doing her medicine at Trinity College, Dublin and loves it

Don't know about Milan...similar to Paris - full of labor union strikes. Also, the Italians are very laid back and are not as hard working as the Germans and the Dutch!

Since there are talks of a proposed merger of equals of Deutsche Börse AG (Deutsche Börse) and London Stock Exchange Group plc (LSEG), IMO Frankfurt would be the best hub...After which Amsterdam and Dublin...

Hope that helps
Jayanthi

 

[QuantMan2318]

Looks like Traders are still building strategies in the wake of the Brexit, here is an interesting article from GARP on how the CDS trades have ballooned with the Risk averse seeking protection for UK company defaults if and when a mild recession occurs on UK leaving the EU. UK companies seem to be the casualties with cost of insuring their Bonds having spiked recently
http://www.garp.org/#!/risk-intelligence/detail/a1Z400000035pY3EAI

Jamie Dimon warns of consequences to the Finance and Fintech sector if the status quo is not obtained some how despite the Brexit, his comments and the news article below warn of other capitals luring companies as well as shift of Finance jobs
http://www.garp.org/#!/risk-intelligence/detail/a1Z400000035pY3EAI

However, the situation will be ameliorated if a compromise is struck to maintain the current rules regarding export of services to the continent

 

[Dr. Jayanthi Sankaran]

Hi @QuantMan2318,

Yes, I saw the GARP article on the CDS. I briefly glanced through it...I get the GARP daily news in my inbox everyday. So much to read and so much of catching up to do...Currently, I am enrolled for Excel (need to brush up!), R programming and Introduction to Probability and Statistics with Coursera (David had recommended this course).

Also, auditing 'Introduction to Banking and Financial Markets' by Prof Narayanan from IIMB. Want to get acquainted with the Indian markets and also brush up. This is also an edx course which I am auditing for free - he is a very good teacher....

Wish I had 96 hours in a day!
Jayanthi

 

[Dr. Jayanthi Sankaran]

Hi @QuantMan,

Here is a link from the Economist on how the BOE has brought down the CCB in order to avoid a credit crunch in the banking system in the post-Brexit world. Made for good reading:

http://www.economist.com/news/brita...rt-bid-keep-credit-flowing?fsrc=permar|image1

 

[Dr. Jayanthi Sankaran]

The Nifty which is the Indian benchmark index of 50 stocks is expected to reach its 52-week high by the end of July. Traders have bought calls on the Nifty. Goes to show that Brexit has virtually no effect on the Indian stock market. For anyone interested in the Indian scenario post-Brexit, here is the link:

http://economictimes.indiatimes.com...com&utm_medium=referral&utm_campaign=ETFBMKTS