Hedge-your-portfolio-with-CFDs-during-Brexit

What is Brexit?


Brexit is an abbreviation for “British Exit”, a term used to refer to Britain’s decision to leave the European Union (EU) from the 23 June 2016 referendum.

 

The results were close, with 51.9% voted to leave and 48.1% voted to stay. Brexit was originally set for 29 March 2019 but was eventually delayed to 31 October 2019. The current British Prime Minister is Boris Johnson, who was elected on 23 July 2019, replacing Theresa May as the leader of the Conservative Party.

How does Brexit affect the Financial Markets? How can this event benefit Traders?


With the departure happening soon, Brexit is likely to drive further volatility and uncertainty in the market.

 

The Bank of England has warned that a no-deal Brexit scenario could potentially shrink the British Economy by 8%. Ever since the 2016 referendum vote, investors have pulled out $9 Billion from UK Company Funds. Chinese firms looking to list via the London-Shanghai Stock connect program have significantly declined. A no-deal Brexit scenario could push the GBP to a new record low.

 

With Contracts For Differences (CFD), traders are able to make both long and short trades, thus profiting from the volatility.

An Infographic on the Brexit Timeline  


Brexit: What to look out for? 

In times of uncertainty and volatility, utilize CFDs as hedging tools for your portfolio!

Equity CFD

Phillip Shares CFD | CFD Trading Singapore

Brexit has sparked huge uncertainties across the global financial markets. This period of uncertainty has impacted not only the UK but both the Eurozone and the U.S. U.K Financial Institutions like Lloyds Banking Group, HSBC, and Royal Bank of Scotland have plummeted between 10% and 30% over the last 12 months.

Index CFD

Phillip World Indices CFD | CFD Trading Singapore

The UK economy could potentially shrink by 8% if a no-deal Brexit were to happen. The outcome of Brexit will affect companies all around UK and bring much volatility to UK100, the market cap weighted based on the share price of the largest 100 British companies on the London Stock Exchange.

FX CFD

Following Boris Johnson’s victory as British Prime Minister, the British Pound sunk to a two-year low. The Bank of England has warned that if a no-deal Brexit happens, the British Pound may be pushed to a new record low. The Euro will inevitably be affected too.

Commodity CFD

Gold/silver are often referred to as safe haven commodities. People often flee to its relative safety in times of financial uncertainties and volatility. Gold priced in British Pounds has even reached a 5-year record high in August 2019.

For more information on our UK Equity CFD, kindly refer to the contract specification and pricing pages.

For more information on our UK 100 Index GBP1 CFD, kindly refer to the contract specification and pricing pages.

For more information on our FX CFD, kindly refer to the contract specification and pricing pages.

For more information on our Commodity CFD, kindly refer to the contract specification and pricing pages.

What’s Next For Brexit?

No-Deal-Brexit

UK’s newly elected Prime Minister, Boris Johnson, has caused a stir with his “do or die, come what may” tagline and has pledged for UK to leave by Halloween. If UK and EU is unable to negotiate and reach a withdrawal agreement by 31st October 2019, UK will leave EU immediately and will no longer be bound by EU’s rules.

Implications: The World Economic Outlook (2019) published by the International Monetary Fund has warned that a no-deal Brexit will result in UK being at risk of a 2-year recession, and a potential loss of 3.5 percent of GDP. Without any trade deals with the EU, UK’s economy is likely to take a hit as its imports will be subjected to an increase in EU’s external tariffs.

Extension of Article 50 Brexit

Given the high probability of Brexit happening, it is highly probable that the EU will grant the UK a Brexit delay if an agreement is not reached. Earlier this year, the UK was granted a 6 month extension from 29 March 2019 (Original date of departure), to 31st October, 2019.


Implications:
Having an extension to Article 50 will provide UK and EU with more time to renegotiate and reach a better deal. However, given Johnson’s “do or die” stance on Brexit, it is unlikely that Johnson will be keen to push for a further extension this time.

General Election Brexit Phillip CFD

Jeremy Corbyn, the leader of UK’s Labour Party is currently pushing for a General Election in a bid to stop the “no-deal Brexit Crisis”.  To do so, a vote of no confidence can be called by the Parliament. If a majoity of MPs vote in favour of the motion, a General Election has to be called to elect a new Prime Minister.

Implications: If the motion passes, Corby’s plan is to become the temporary Prime Minister, hold a snap election and delay Brexit. However,  it is difficult to put this motion in place as it would require some conservative MPs from the Tory Party (and all opposition MPs) to vote against Johnson.

Second referendum Brexit Phillip CFD

After the first referendum in 2016, with a result of 51.9% leave to 48.1% remain, talks of holding a second referendum has been getting increasingly more popular. The previous Prime Minister Theresa May had proposed on a second referendum but was rejected.

Implications: Holding a second referendum will require a time period of at least 22 weeks to pass the legislation in parliament and to hold the voting process. It is unlikely that the referendum will be able to take place before 31 October. If a second referendum were to happen, Brexit will likely be delayed.

References

BBC
Financial Times
Full Fact
Politico
Womble Bond Dickinson
South China Morning Post

 

Information is accurate as of 23rd September 2019.

With Brexit just around the corner, open an account with us and use CFDs as a hedging tool for your portfolio! 

 

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