Brexit Opportunities – Top Stocks To Watch
The shock decision by the UK to cease its ties with the European Union has sent shock waves through global financial markets. As a result, risk assets have taken a material hit as investors opt for safer waters. Despite the Brexit being bad for consumer and investor sentiment globally it also provides little direct obvious opportunities in the equity markets.
believe if a global equity selloff occurs without discretion, it will provide opportunities for investors. In
panic selloffs often investors elect or are forced to sell without assessing the fundamentals. This can cause
valuation distortion and it can create potential for cheap valuations on some stocks. This is particularly true for stocks that have strong earnings and business drivers with little to no exposure to the fallout. Essentially we believe investors should focus on opportunities unrelated to the Brexit which have unfairly sold off.
’s Top Picks Australasian Picks on a Brexit Related Selloff
Direct trade, investment and earnings consequences for Australia and New Zealand of the Brexit are
likely to be relatively modest. We expect some volatility in markets with equity’s and currencies (AUD,
NZD, GDP, EUR) coming under pressure, while bonds and gold remain very supported as investors move
to ‘safer’ assets. The fall in the AUD and NZD can be seen as a positive for a number for sectors whose
revenues are positively correlated to the movements in the currencies.
The ASX’s revenue exposure to UK and Developed Europe is fairly minimal at 1.8% and 2.0%,
respectively. The NZX is estimated to have a similar exposure. From a trade perspective, Australia has
limited exposure with total merchandise exports to UK being 2.5% and Euro Area 3.5%, and total imports
being 3% (UK) and 13% (Euro Area). New Zealand is slightly higher with total merchandise exports to UK
being 3% and Euro Area 11%, and total imports being 5% (UK) and 13% (Euro Area). Trade focus for both
AU & NZ has become much more focused on emerging markets and Asia of recent years and therefore
both countries will be insulated to some degree to the fallout.
The immediate moves locally have resonated offshore moves, but as the dust settles we think investors
will differentiate between UK/EU linked investments and those that remain relatively unaffected.
Accordingly, this will provide opportunities for investors. We would avoid the volatility of companies
that have large revenue or profits derived from the Eurozone. We would consider trimming or
moderating positions that do have direct exposure. Growth forecasts for the area are likely to be
downgraded leading to negative sentiment on stocks whose earnings are derived from the region.
Instead, we would patiently wait for stocks that have little to no UK/EU exposure (discussed below) but
have their values decline an excess amount as a result of general market volatility. These investments
are likely to yield the best results given that they are likely to be less volatile and perform better once
market panic subsides.
