How did you react to the Brexit-inspired selloff in the markets?
Let’s face it, the UK never had an “in for a penny in for a pound” approach towards the EU. Now, it is out in the open. Following the referendum, a new chapter is beginning for the European Union and the UK, an interesting one I must say. Everybody is talking Brexit nowadays, even the Rabbi here in Singapore mentioned it during his Shabbat speech. However, there was response that I particularly liked and the credit goes to non other than Mr. Trump:
Mr Trump may better represent how ordinary Americans feel out about Brexit. When asked recently to comment on it by journalist Michael Wolff, he replied. “Huh?” That was followed by, “Hmm”. Finally he seemed to cotton on. “Oh yeah, I think they should leave,” he said.
Back to the selloff in the equity markets. After cooling down from the initial surprise and thinking about it in a clear mind I don’t see the Brexit as a big deal. It’ll have impact on some companies but geopolitical processes like that are always taking place (why no one panicked over the TPP?); changes are inherent to the world we live in. I even think that the advent of Amazon has more far-reaching consequences on companies and industries than the Brexit.
Looking at it in a bottom-up manner, I think that the only companies that will delay investing are those that heavily depend on intra-EU trade agreements. And those companies will probably weigh in pretty heavily during the upcoming negotiations of trade agreements. Other businesses will not see much impact and I don’t think that the Brexit will cause people to consume less nor will it cause the vast majority of the companies to stop investing. It will lower confidence for a while, those business that depend on importing things into the UK will see their costs go up and their products being less affordable. On the other hand, those British businesses that are export-driven will get more Pounds for the their goods, so this is really a mixed bag. But, those businesses that have to adjust, will adjust. They always do.
Consequently, I think that now is a good time to buy stocks. It is certainly not early 2009’s “bring the truck and load it up with anything” kind of environment. But, there are many names that took a double-digit hit on Friday and were not expensive to begin with. At times like this, it is good to have a watch list that contains businesses that you always wanted in your portfolio but didn’t want to pay too much for. Or even easier, now I get a chance to buy more of what I already own at attractive prices that weren’t available had the Brexit not taken place. The bad mood in the market might (or may not) continue for some time now and it is impossible to know when the mood change again. So, I wouldn’t go all in at once but I think that this is the time when the direction of the flow of money should be, unlike what the Britons voted, in, not out.
This write-up is more of a mental note and I’ll try to revisit this by the end of the year to double-check if this was indeed the right time to be greedy.