It’s official…or seems like it. It seems that the October deadline will not be respected for the UK and the EU to secure a Brexit deal as both sides are pushing it back. News reports are now suggested the new divorce deal will be finalised by mid-November.
This has indeed created more concern in the region and each day that passes the likelihood of an unexpected ‘no deal’ Brexit becomes more real.
This deadline delay has come a few days after British Prime Minister Therese May said that a no deal event is ‘not the end of the world’ albeit stating that the negotiations are still going on.
No one knows if a deal will take place or not but a no deal event, which was unforeseen few months back, is now becoming more plausible. We will definitely experience higher levels of risk as the deadline looms.
From a currency standpoint, consensus is that Sterling will suffer if Britain exits the EU without a deal. Analysts are suggesting that GBPUSD might hit the regions of 1.20 (which is similar to what happened following the referendum in 2016) whilst EURGBP would be in the region of 0.93. (More information on this on a previous article).
From a UK perspective, small cap stocks will be hit the hardest as consumers will spend less amid the uncertainty as these firms generate most of their income within the country.
As no deal risk mounts, it would make sense to look more at large cap stocks listed in the UK which generate their revenues mostly from abroad. These companies will generate more revenues due to a weaker pound. We already mentioned Aston Martin today and the fact that it is looking to float its shares on the market. CEO Palmer was also reported saying that a ‘No deal brexit will be beneficial for car manufacturers due to a weaker pound’.
Oil and Gas companies should also thrive as their products are sold in USD.
Import oriented companies (as opposed to export oriented) will suffer more not just due to a weaker sterling but also due to higher import costs (i.e. increase in administration fees for goods and delays at the border).