From Emotion to Reality
Pfäffikon SZ, Switzerland – The Brexit is final; the European Union (EU) has become a legal and financial mess. The European fairy tail is slowly destroyed by the British. However, from a UK perspective, the Brexit is fully understood. Emotion has been replaced by the harsh reality.
Bookmakers
The last few days, I found the attitude of investors who tailored their investment policy based on the opinion of the English bookmakers laughable. Bookmakers thought that a Brexit was more or less ruled out, which caused a decrease in stock market prices at a rapid pace. A classic relief rally was a fact. However, to buy because others buy on the stock market is a strategy that is built on pie in the sky. I suspect that the bookmakers have based their opinion on the London region and that they have been forgotten the countryside. The people living there can drink the EU’s blood. They see the EU as an extension of Germany.
Elections
I am very curious how the Spanish elections will evolve; I think Catalan schools will be further encouraged. Not to mention the recent developments in Italy and the Netherlands. The chance that the European dream will face more pressure has increased. Meanwhile, several European companies are hit amidships by the Brexit. The changes will be substantial and will further fuel a (global) recession. I wonder what kind of magic Mr. Draghi of the ECB will now conjure up of his hat.
Dessert
The dessert still lies ahead; China. The Brexit is presented as hype, while the Chinese are anxiously quiet for months now. A devaluation of the Chinese currency should not be excluded, which will make the Brexit a child’s play. It is only a matter of time until investors are confronted with the actual Chinese issues.
Overvalued asset classes will ––like this Friday morning–– be punished hard. Here, too, emotion will be exchanged for the harsh reality. It promises to become a long and hot summer at the global markets.
It remains for me to wish you a good weekend.
Jan Dwarshuis is a senior asset manager at Thirteen Asset Management AG, where he is responsible for the Thirteen Diversified Fund. Dwarshuis writes his columns in a personal capacity and is not paid for them. Nor is he paying for his columns to be placed. Professionally, he holds positions in major European, American and Russian stock funds. The information in his columns is not intended as professional investment advice or a recommendation to make certain investments. At the time of writing, he has no position in the above mentioned shares and has no intention of doing so in the next 72 hours.
