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Brexit Draft Deal Makes These Sector ETFs a Must-See

Sanghamitra Saha
The Zacks Analyst Blog Highlights: American Airlines, JetBlue Airways, Southwest Airlines, Alaska Air and Delta Air

The United Kingdom has finally struck a draft deal with the EU pertaining to Brexit.  However, there has been unrest in the parliament, with at least 16 members of U.K. Prime Minister Theresa May’s own Conservative Party demanding a vote of no confidence as they do not agree with the terms of the proposal.

Already, U.K. Brexit Secretary Dominic Raab has resigning from his post. A junior minister for Northern Ireland, Shailesh Vara, the Work and Pensions Secretary, Esther McVey, and Suella Braverman, a junior minister in Britain’s Brexit Department, also put their papers down on Thursday morning, per CNBC.

Amid such hostility, it’ll definitely not be a cakewalk for Theresa May to get the Brexit deal done, though the prime minister has vowed to get it through despite the marked divisions. This scenario brings the below-mentioned ETF areas under the spotlight.

Europe Financials

As soon as Britain cuts the cord with the EU, its importance as a corporate transit to the rest of Europe would be lost, going by an article on CNBC. Many global institutions may even want to shift their base from London to the German capital Frankfurt – another hot spot in the European Union. Europe’s financials stocks and ETFs like iShares MSCI Europe Financials EUFN will be the direct underdogs (read: Goldman Sachs Proposes a Eurozone Banks ETF).

Investors should note that if a comprehensive deal is not reached, “lenders would have been more exposed to a possible contraction in U.K. growth,” a “lower-for-longer rates and any potential change of direction in the credit cycle,” per an analyst Andrew Coombs.

Airlines

This is one of the most vulnerable sectors as issues related to “landing rights, pilot licenses and the trade of aircraft parts across borders” could be arised if a wide-ranging Brexit deal is not signed, as warned by the International Air Transport Association.  There could be a significant fall in the “number of people flying in and out of the UK,” as per the source. As per IATA, Brexit could cause 95% fewer flights between the U.K. and Spain in a worst-case scenario, as quoted on Bloomberg.

Also, oil prices play a crucial role in the airlines’ cost structure. If oil prices manage to see an uptrend in the coming days on the possible fresh OPEC output curb deal, airlines may suffer on profit margins. All these put focus on pure-play airlines ETF US Global Jets ETF (JETS) (read: Will Airlines ETF Keep Gaining Altitude Ahead?).

Hotels and Restaurants

The pound dived to a 31-year low when results of the Brexit referendum came out on Jun 23, 2016. To date, Invesco CurrencyShares British Pound Sterling FXB has lost about 7% since Jun 24, 2016. It made trips to U.K. cheaper for foreign tourists. But some of that gain has been wiped out by falling business travel, per Blomberg.

Marriott International Inc. (MAR) and Hilton Worldwide Holdings Inc. HLT both expressed concerns about the dampening impact on room rates due to Brexit talks. Marriott particularly highlighted weaker demand from the financial services sector, per Bloomberg. Invesco Dynamic Leisure and Entertainment ETF (PEJ) will thus comeunder pressure.

Auto

According to an article published on Bloomberg, carmakers like Peugeot and Citroen producer PSA Group have persuaded the UK and EU to negotiate a deal to avert disturbances to production. The Society of Motor Manufacturers & Traders (SMMT) estimates that 80% of the cars made in the United Kingdom are exported and the maximum share of it goes to the EU. This puts First Trust NASDAQ Global Auto ETF (CARZ) under focus.

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FT-NDQ GL AUTO (CARZ): ETF Research Reports
 
PACIFIC (EX: JA (PEJ): ETF Research Reports
 
CRYSHS-BRI PD S (FXB): ETF Research Reports
 
US GLOBAL JETS (JETS): ETF Research Reports
 
ISHARS-MS EU FN (EUFN): ETF Research Reports
 
Marriott International (MAR) : Free Stock Analysis Report
 
Hilton Worldwide Holdings Inc. (HLT) : Free Stock Analysis Report
 
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