Brexit Consequences – What Really Happened
A few weeks ago, I wrote an article on the reasons I felt that UK needed to leave the Euro. Then, last week, the United Kingdom’s residents decided to leave. The decision for the country to leave the union caught many people by surprise. The bookmakers, opinion-makers and the market got it all wrong. Billions of dollars was lost in the process. The top EU decision makers led by Jean-Claude Trichet and other top EU country presidents led the call for UK to leave the Union as fast as possible. At the same time, more than 1 million voters have signed a petition to have another referendum. This comes at a time when the Britons are being told of the severe consequences that are to come with their decision. I am however of the opinion that there is a lot of hope for United Kingdom. Here are some Brexit Consequences to follow up:
Consequence #1 – Trade Deals Possible
One of the main arguments against Brexit was that the United Kingdom would lose trade deals it already has in the European Union. Also, it has been argued that Britons will now not be free to work in the rest of the EU member countries. Another argument is that EU will not have the access to a large EU market. To a large extent, this type of argument is valid. However, the fact is that UK has a good negotiating power in the EU and elsewhere around the world. Before Brexit, EU had a total population of 508 million people. The UK has more than 70 million people. Also, the UK was one of the leading economies in the union. Therefore, companies in other companies in the EU will still want to do business in EU. Therefore, the basis of the ‘sanctions’ that pundits are talking about will not be possible.
Consequence #2 – Huge Market not in the EU
The world has more than 7 billion people. At the same time, EU is known for its stringent business and foreign policies that have made many businesses to resist doing business with it. As an independent country not tied to a union, Britain will be at a good position to come up with new and policies that are not tied to the EU. This will therefore open the market with more countries such as China and Brazil which have for long suffered from the stringent measures of the Euro. In addition, the UK can get to the global markets to buy cheaper products. For instance, the Common Agricultural Policy which bars member states from buying food products from other markets can now be repealed. This will enable the country to buy cheaper food products from other countries in exchange of other goods and services.
Consequence #3 – EU has Failed
To a large extent, the European Union has had a number of successes. For instance, UK residents can compete in the job market in the 28 member countries without much issues. Companies are also able to do business in the other countries without much trouble. This is a positive thing. However, ÉU has also had its failures. A number of countries have not achieved the economic success. For instance, Greece is now one of the worst economies in the world. Portugal, Italy, and Spain have also not achieved a lot of success. As shown below, the UK economy has not performed well as expected. Therefore, I believe that the UK has an opportunity to define its growth strategy as an independent country like many other countries such as USA and China have done.
Consequence #4 – UK can become an EU member again
The European Union constitution does not forbid any country from becoming a member of the Euro. The same constitution allows member countries to leave. Based on the Copenhagen Criteria, it is possible for a member country to rejoin the union if it feels that it is better together. This will give the United Kingdom’s residents a chance to evaluate the impacts of leaving. If they feel they are better outside, then they will stay away from the EU. If they feel they are better in the EU, then they can go back. This will however be a long process because it will have to reapply for the membership. However, there is hope for UK to be back in the EU if things fail to work out.
Brexit Consequences – Useful Links
- Be updated on the latest Brexit Consequences on Independent
- Read other news about Brexit Consequences on BBC
Brexit Consequences – A Strong Swing
After the Thursday’s referendum, a lot has been said and written about the future of the UK, EU, and global markets. Top economists have warned of uncertainty in the next few months as people digest what the exit really means. This is largely because of two major reasons. One, the UK was one of the main pillars of the European Union. Secondly, no other country has left the EU years after its formation. In this article, I will highlight a few likely Brexit consequences of what could happen.
#1 – More Stringent Regulations in EU
The European Union leaders were not happy about the exit. Going by the language they issued after the results were announced, it seems that life could get a bit harder for the United Kingdom. Most leaders including Jean Claude Trichet (EU president), Jean-Claude Juncker, and Francois Hollande asked the country to leave fast. Though the three leaders have rejected the need to punish the UK for leaving, many experts believe that the free trade agreement will be reviewed. Most manufacturers such as the VW CEO have rejected the need to punish UK for leaving. To prevent the EU from disintegrating, it is likely that a few measures that limits UK’s trade with EU will be implemented.
#2 – Break-up of the UK
That United Kingdom is no longer a united country is not new. Different parts that make the United Kingdom have for years complained of the country being a bitter country. In 2014, the Scottish people went to a referendum to divorce from United Kingdom. Though the No side won, it sends a clear message that the UK is no longer a united country. In the referendum held last week, most Scottish people voted to remain in the EU. After the announcement, Nicola Sturgeon, the country’s First Minister said that talks to separate from the UK would start. Northern Ireland on the other hand voted to remain in the EU. Therefore, chances are that the two states will soon vote to exit from the United Kingdom and possibly join the EU.
#3 – Improved UK Economy
There is a consensus among top economists such as the Nobel-winning Paul Krugman and Larry Summers that the UK’s economy might suffer after the vote. However, the number cannot be quantified at the moment. However, as I have argued before, I believe the UK’s economy will improve after the Brexit. This is because the country will define its new economic policy that is not pegged to the EU. In addition, companies are requesting the policy makers not to introduce trade barriers in the country. As an independent country, the UK will also forge new partnerships with other countries and organizations. In the long-term, the results of this brexit consequences will be a better UK’s economy.
#4 – Further Break-up of the EU
Following recent blunders by the European Union, I believe that more countries will certainly leave the UK. Their decision will be based on the performance of the UK after its withdrawal is fully ratified. This might take a few years. It is also anticipated that Greece will soon miss its deadlines which could lead to its exit. If the UK does well, then other countries will start considering exiting the body. Presently, rumours that France will exit in what is now being known as Frexit are rising. It will however exit based on how UK behaves next after these Brexit consequences .
#5 – Foreign Investment
There have been concerns that after Brexit, foreign funds inflows in the country will dry up. I believe these concerns are overblown. The fact that most foreign firms have set up their offices in London is not as a result of UK’s membership of the EU only. Most firms set up their offices in the country because of its strong economic fundamentals. At first, many firms are panicking because of the anticipated economic ‘punishments’ of UK. However, in due time, UK will probably set up friendlier policies that will lead to more countries investing in the country. These sentiments are echoed by a recent research by Wood Ford Funds.
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Brexit Consequences – What Traders Should Do Now
A few months ago, Economist Intelligence released a report highlighting some of the most important risks for the global environment. Brexit was one of the risks mentioned. True to the report, Brexit would lead to serious Consequences to the global financial markets. Another risk mentioned in the report was Donald John Trump who is a major contender for the United States presidency. For traders, the Brexit vote should be eye-opening. Wise traders will take the Brexit vote and learn from it. This is because of the similarities of the two campaigns. In this article, four lessons traders should learn from the Brexit vote will be highlighted.
1# – Experts are not Always Right
In 1992, George Soros made a bet that has made him a multi-billionaire. The billionaire is known as the man who broke the Bank of England (BoE). His bet made him more than $1 billion. Today, he is not only a billionaire but a global expert on economic matters. During the Brexit vote, Soros placed a bet that United Kingdom won’t leave the EU. He lost. Other experts have been wrong too. For instance, Mohammed El Erian who is the senior economic advisor for Allianz and a senior commentator on economic issues believed that UK would not leave the EU. Other senior experts who were wrong include: Paul Krugman (a Nobel winning Economist), Larry Summers, Jamie Dimon, and David Vines, a professor of Economists at Oxford University. Therefore, as a trader, you should always listen to experts but make your decisions independently.
2# – Polls are not Always Right
As a trader, this is probably something you have experienced. On a daily basis, we are presented with ‘poll results’ in the name of analysts’ opinions. If you have been trading for a long time, you have realized that forecasts (economic and earnings) are not always right. In fact, in many cases, the estimates are either beaten or missed. They are rarely in line with the analysts. In the same way, for a long period, polls indicated that the Remain camp would win. Bookmakers also believed that the remain side would win. In fact, they were 90% certain that remain would win. At the end of the day, when results were announced, the remain side had lost. As a trader, you should always remember to make your independent decisions.
3# – Always be Protected
On Thursday, global markets were up more than 3% on average. Commodity prices were also up. This was attributed to the fact that most traders believed that Brexit would not happen. Furthermore, experts and polls had already assured them that. To their surprise, the gains made the previous day were wiped away within minutes. The people who had not protected their money lost it all. As a trader, no matter how convinced you are, you should never leave your trade un-protected. You should always have a stop loss to prevent huge losses. Also, if possible, you should consider hedging your trade. For instance, in the Brexit issue, you could have achieved that by going long (2 lot sizes) GBPUSD while shorting EURUSD (1 lot size). The consequence is that you would lose $500 in your GBPUSD trade and gain $250 in your EURUSD trade. Still a loss but a smaller one.
4# – Hedge your Trades
I have already mentioned this in the previous paragraph. However, I believe it is worth repeating. At some point in our lives, we have all admired hedge funds and their managers. This is because for a long time, the hedgies have delivered superb uncorrelated results, beating the market. The secret of most hedge funds is that they hedge their trades. One way of doing this is using a long/short strategy where they go long a few assets while shorting. Another way is going long a few assets while shorting other classes such as commodities or currencies. As a trader, hedging can help you reduce the risks involved in the market. Some of the best tools to hedge are treasuries and gold. As the United States prepares for the next general election, these strategies will help you prevent making losses when either Trump or Hillary Clinton wins. For instance, if Trump wins, many investors believe the economy will slow down based on recent research. Therefore, the dollar will weaken while gold will strengthen as investors move to safe havens.