Even a Cloud Like Brexit Offers a Silver Lining
WHY YOU SHOULD CARE
Because the deed is done, and there are some surprising bright sides.
“We’ve had our say, and now they’ll just have to get on with it,” my London cabbie told me yesterday. He doesn’t care about the pound sterling plummeting or the nation’s leadership crisis — so long as Brexit keeps “them Somalis out.”
For “leave” voters like him, Brexit symbolized a (probably false) hope that exiting the bloc would make it easier for Brits, as opposed to foreigners, to get welfare, council housing and jobs. But the fact is that any upheaval is bound to have financial losers — and winners. Indeed, while the U.K.’s decision to leave the European Union has caused all sorts of capital market volatility, and plenty of pain, it is also offering some surprising advantages. My cabbie, for one, is likely to profit from the arrival of more foreigners as they flock to the Big Smoke to shop and tour while the pound sits at a 31-year low. And British exporters — peddling everything from whiskey and high fashion to pharmaceuticals and aircraft — will benefit from their goods being far more affordable abroad. Irish retailer Primark, for example, has already forecast higher profits as a result of outside-U.K. earnings in the wake of Brexit.
[Brexit] will allow Britain space to celebrate and develop its own culture, entrepreneurialism and identity once again.
Elaine Stewart of British gun manufacturer Longthorne
Then there’s the upside for investors. Savvy short sellers can also do well, says Jeff Moore, an analyst with Global Risk Insights. It’s a risky gamble, as ever, but for those who bought up pounds on the day after the vote, the currency’s slight bounce in the subsequent days offered money-making potential, and the pound is likely to fluctuate for some time. “The pound will probably stay at depressed levels, bouncing along those lows for quite a while,” says Moore, offering such risk-takers more opportunities to profit.
The more isolationist political turn could also mean that domestically focused manufacturers fare well. While these firms, for example, may have long struggled in the face of Polish and Spanish competitors — who enjoyed lower operating costs in their countries — now they’ll be better insulated at home. A sudden drop in competition from abroad makes it more likely that they’ll become preferred providers at home, Moore explains: “Home market, domestic manufacturers and industries in the U.K. may benefit from something like that as far as having better market share because they’re not facing the competition they may face in one single open market.” Elaine Stewart of Longthorne Guns, in Northampton, England, agrees, saying Brexit “will allow Britain space to celebrate and develop its own culture, entrepreneurialism and identity once again.”
If the big banks remain in London despite Brexit — a prospect Moore is betting on, given that “finance likes the status quo” — it’ll bode well for Britain generating goodwill in bilateral treaty negotiations, many of which it’ll now need to forge with its European trade partners. Britain is Germany’s third-largest trading partner, with Teutonic exports to the U.K. hitting nearly 90 billion euros’ worth last year, according to DZ Bank — so Deutschland and other export-reliant EU economies will have good reason to quickly forge trade deals with Britain.
Given the uncertainty regarding the future political process and its economic ramifications, the same DZ Bank report suggests that the U.K. economy will “visibly contract during the summer months and slide into recession by the end of the year.” In recent years, European countries facing economic weakness have worked to stimulate their markets with fiscal or monetary policy, so Moore says the Bank of England “may find reason to go lower on interest rates … in a bid to stimulate the economy.” The BOE, in fact, is mulling such a move this week, and while it wouldn’t be great for pensioners counting on savings and interest, it would mean lower borrowing costs for home buyers. And that easier money, Moore says, could prime the housing industry.
Emily Mackay, CEO of Crowdsurfer, believes there’s some good news for the world of crowd finance, too. Given the wide range of crowd finance opportunities, as well as sectors, she’s betting that its “diversity will prove attractive in the face of uncertainty.” Also, if the Bank of England indeed drops rates or adds pounds into circulation to offset an economic downturn, traditional finance is bound to offer less return on investors’ money. This, Mackay says, may see more people looking to crowd finance in search of bigger returns.
The bad news, of course, is that there are plenty of downsides to Brexit. While borrowing may be easier, for example, housing prices, according to the Treasury, could drop by as much as 18 percent. From market-roiling uncertainty, currency volatility and pricier imports to a political vacuum and even increased racial violence, there’s plenty not to like about Brexit. There’s also the risk that Britons have simply opened the floodgates for more EU mayhem to come — the start of both a financial and political contagion that slowly unravels the EU and the euro in the years to come. “The unwinding of all this is going to be like a slow-motion car wreck,” says Moore.
It’s impossible for anyone to accurately predict what the situation will look like in the future. But for now, at least, this cloud offers a few silver linings, as Europeans — Brits still included — try to figure out how to weather the storm.