Sunday, 25 August 2019 05:30 GMT
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Time for 'Trexit'-proofing




(MENAFN - Khaleej Times) Fighting back tears, Theresa May has announced that she would be stepping down on June 7, throwing the Brexit saga into even more uncertainty.
The British prime minister's departure, therefore, demands that investors move to mitigate risks to their wealth.
"The pound - the main market bellwether since the UK voted to leave the EU, rallied immediately against the euro and dollar, before giving up its gains, following Theresa May's not-so-shocking resignation as prime minister," Nigel Green, chief executive and founder of deVere Group, told Khaleej Times in a statement.


Searching for a new leader, he adds, is likely to bring further political and economic uncertainty for the future of the UK, which would particularly hit markets.


"Uncertainty, typically, causes dips in confidence in the market, meaning that the pound and UK-based assets could be expected to decrease in value as a result," Green said.


"With the uncertainty intensifying due to 'Trexit', investors in UK assets should mitigate risks to their wealth by ensuring their portfolios are properly diversified geographically and by asset class and sector."


Global stocks, however, were rebounding as May's move sunk in. Markets also banked on hopes for an easing in the US-China trade dispute.


Investors appear to hope May's pending resignation could unblock the political stalemate over Brexit. Some analysts are warning it could simply mean another delay to the EU departure.


Britain's FTSE 100 rose 0.6 per cent to 7,276 in midday trading. France's CAC 40 added 0.9 per cent to 5,327, while Germany's DAX also rose 0.9 per cent to 12,056.


After May steps down, a new leader will be chosen within the ruling Conservative Party, a process likely to take several weeks. Some experts see a rising chance of a Brexit without a deal on trade relations, though others note that parliament remains as divided as before, and a new leader will find the same challenges to agree on a Brexit deal among UK lawmakers.


The British pound, meanwhile, which has bore the brunt of all things Brexit, will widely be monitored as this new twist unfolds.


"May's departure means more uncertainty over UK politics and Brexit," Fawad Razaqzada, market analyst at Forex.com, told Khaleej Times in a statement.


"The pound's instant reaction was a negative one, suggesting investors now think that May's exit has either increased the odds of a no-deal Brexit or that it could mean there will be further delays in UK's departure from exiting the EU."


The British currency rose to $1.2686 from Thursday's close of $1.2657. Green pointed out that with the next prime minister likely to be an "ardent Brexiteer" who could push for a no-deal Brexit, it would pile more pressure on sterling, among other assets.


"Exposure to equities and bonds, from as many different issuers as possible will help safeguard their savings from this uncertainty and take advantage of the opportunities that will inevitably be presented," he added.


A no-deal Brexit appears inevitable after May announced her resignation, paving the way for hardliners to take over, an increasingly assertive Spain warned on Friday.


"Under these circumstances, a hard Brexit appears to be a reality that is near impossible to stop," Spanish government spokeswoman Isabel Celaa told reporters.


She added "the British government, the British parliament" would be "solely responsible for a no-deal exit [from the EU] and its consequences."


Asian stocks were less upbeat. Japan's benchmark Nikkei 225 fell 0.2 per cent to finish at 21,117.22. Australia's S & P/ASX 200 lost 0.6 per cent at 6,456.00. South Korea's Kospi dropped 0.7 per cent to 2,045.31.


Hong Kong's Hang Seng edged 0.3 per cent higher to 27,353.93, while the Shanghai Composite was little-changed at 2,852.99.


"Going forward, the pound could drift aimlessly as investors await fresh Brexit direction. I suspect the pound will only be able to rise meaningfully should the probabilities of a second referendum increases," Razaqzada added.


"However, if a pro-Brexit Tory leader is elected, such as Boris Johnson, then this could lead to further declines for sterling. But essentially it will be a wait-and-see situation in the very short-term outlook and the pound could see short-lived spikes here and there."
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Time for 'Trexit'-proofing

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