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The shocking decision of Britain’s voters to leave the European Union has reverberated through the global financial markets since last Thursday, and our weekly list reflects these developments. Unsurprisingly, the British pound and Financials equities, which have been hit the most by the fallout, have taken the first two spots. The U.S. dollar, which acts as a safe haven these days, is also present in our list along with the gold, while European equities have drawn interest for taking a beating as well.
British Pound: Making History
The British pound has fallen off a cliff after Britain’s referendum on EU membership was marginally won by the camp backing an exit from the bloc. As a consequence, the page tracking ETFs offering exposure to the British pound has taken first place in our list with an astonishing 714% increase in viewership week-over-week. Worth noting, the currency is present in our list for the fourth consecutive time. The pound fell to a thirty-year low against the dollar immediately after the referendum, but it later recovered some of the losses. The main pound ETF, Guggenheim CurrencyShares British Pound Sterling Trust (FXB A-), has tumbled nearly 10% over the past five days, and is down 9% since the beginning of the year.
Despite staging small gains in the past two days, few have ventured to predict a full-blown recovery in the pound. In fact, quite the opposite – expectations are that the pound will weaken further. It may even reach new all-time lows as Britain’s economy heads towards years of uncertainty, and runs the risk of disintegration. A recession is very likely. Early official data will be available within weeks, but anecdotal evidence points to a gloomy picture. In addition, polls show that many firms plan on cutting staff or freezing hiring for now.
Britain’s future – and that of its businesses – will hang in the balance over the next period. Until Prime Minister David Cameron resigns in September, little will be known about the path Britain might take next. But he made it clear that Britain wants to take its time to decide what type of relationship it wishes to have with the EU before triggering the Article 50. While this debate will take place, the economy is highly likely to suffer a blow from uncertainty. Bank of England could find it hard to save the economy given that interest rates are already at record lows of 0.50%.
Financials Equities: Selling off Like It’s 2008
Financials Equities have registered a 588% increase in viewership since Brexit, as the banks have taken a serious beating in the aftermath of the vote. Financial institutions will suffer severely from the fallout, given that Bank of England will probably cut interest rates, house prices will fall and the economy may tip into recession. These potential problems exacerbate an already-fragile banking sector, which has yet to fully recover from the 2008 financial crisis. As an example, iShares MSCI Europe Financials (EUFN B+), an ETF consisting of European banks, has dropped 15.6% since the referendum, and at some point was down as much as 21%. The last week’s tumble has extended year-to-date losses to 24%.
On an individual basis, banks with bigger exposure to Europe have been hurt more than others. HSBC Holdings (HSBC), which largely operates in the Asian markets, has seen its stock fall nearly 8% since last Thursday, while Barclays (BCLYF) tumbled 25.6% over the same period.
In addition to cyclical issues, the Brexit poses some structural problems, which threaten to change many of the city banks’ modus operandi. It all comes down to what deal Britain will negotiate with the European Union following the exit. If it maintains unrestricted access to the single market, banks will be able to keep their so-called “passport,” which allows them to provide services across Europe from London. Otherwise, many of the banks would have to move the bulk of their operations inside the EU, incurring additional costs.
U.S. Dollar: The Unlikely Shelter
The U.S. dollar has acted as a safe haven in the post-Brexit turmoil, gaining against the Euro and the British pound, but falling against the Japanese yen. Dollar ETFs have experienced a 227% spike in viewership over the past week, reflecting readers’ interest in the currency’s ascent. PowerShares DB US Dollar Bullish (UUP A) has jumped 3.4% since last Thursday, trimming year-to-date losses to 3.3%.
As the Brexit repercussions unravel, the dollar may continue to appreciate, particularly against the Euro and the British pound – and possibly in relation to some emerging market currencies exposed to Europe. However, the greenback’s gain should be tempered somewhat by expectations that the Federal Reserve will not increase interest rates anytime soon.
European Equities: Racing to the Bottom
Traffic to Europe Equities ETFs has grown more than 220% since last Thursday, as both continental Europe and Britain have been sold off by investors. Interestingly, some U.K. ETFs have performed better than continental Europe. For example, iShares MSCI Eurozone (EZU A-), an ETF consisting of companies strictly based in the Euro area, has tumbled 8.5% over the past week, while iShares MSCI United Kingdom (EWU A-) has fallen 7%.
The reason for this performance disparity is that many of Britain’s blue-chip companies are more global in nature, and thus less bound to suffer from the regional fallout. Indeed, United Kingdom’s FTSE 100 has recovered all its losses since last Thursday, and is now up 0.5% since then.
Gold: Safety in Demand
Gold ETFs have seen their viewership rise 138% this week compared to the last one, as demand for safe havens increased in the aftermath of the referendum. SPDR Gold Shares (GLD A-), an ETF offering direct exposure to the precious metal, has spiked 4% since last Thursday, extending year-to-date gains to as much as 24%.
With uncertainty plaguing the markets for the time to come, and the increasing possibility of the Federal Reserve to delay a rate hike, gold could continue to perform well in the months ahead.
The Bottom Line
All components in our weekly list have ties one way or another to Britain’s shocking decision to exit the European Union. The British pound, Financials and European equities have drawn interest for their consistent drop since last Thursday, while Gold and the U.S. dollar attracted readers for their safe-haven status.
By analyzing how you, our valued readers, search our property each week, we hope to uncover important trends that will help you understand how the market is behaving so you can fine-tune your investment strategy. At the end of the week, we’ll share these trends, giving you better insight into the relevant market events that will allow you to make more valuable decisions for your portfolio.