- Wealth PMS (50L+)
You wouldn’t think that Britain moving out of the EU would be this damaging, especially after markets remained a little happy yesterday when they all went 1% up happy that the betting sites had it right that Britain would remain in the EU. Well, they didn’t, it seems, because the referendum results, at about the halfway stage, show otherwise.
Which is down, well, a lot.
This is a massive fall for a currency that hasn’t seen this level for a really long time. A really really long time. Not for the last 10 years!
The ten-year low, and getting lower, is brilliant for British exporters. Not so much for people in Britain who have loans denominated in USD – they just have to return 10% more in pounds!
The big exporter in the top economies, Japan is seeing a major rise as the carry trade unwinds. People are returning to the Yen.
If you’re a British Importer, maybe. But the market reaction in the short term is not the same thing as how things work in the longer term. In the short term, a Brexit may not even happen (votes are not yet counted fully). If it does happen, the reaction on the pound could mean a run to safety (Dollar/Yen) which means an exit from the Rupee.
A rupee drop – to say 68 or so – will change a lot of fundamentals for India which has a bunch of loans to return later this year. There’s also the fact that Indian corporate ECB will hurt big time, since most of such loans are unhedged. Companies like Tata Steel, Tata Motors, Tech Mahindra etc. who have big exposures to the UK will have a tough time in dollar or rupee denominated revenues.
The Yen hurts Maruti who has some 20% of revenues paid out to Suzuki in Yen royalties. There are others who’ve borrowed in the Yen, who hurt too.
There’s a countless other downstream impacts too. Let’s react, not predict though – there will be reactions and overreactions – if you can’t sleep, sell until you can.