HOW MSI INTEND ON TAKING ADVANTAGE OF THE BREXIT

The Brexit has dominated market talk and rhetoric over the last couple of months, and the movements have been large to the extreme. Many wonder if the directional movements we have witnessed so far will continue, or whether the movements have been over played and a whipsaw reversal will take place. Now the dust has settled we want to look at ways where we can take advantage of the market climate over the next couple of quarters.

When Will Exit Talks Start Seriously?

The very simple answer to this, is that the new PM Theresa May must decide when to activate Article 50 of the Lisbon Treaty, which will kick off 2 years of talks. Whilst some leaders/ministers at home and abroad feel ‘the need for speed’, Mrs May has already confirmed she won’t be pulling the trigger before year end. She is definitely following the ‘best decisions are made logically, and not emotionally’ mantra.

A hot topic of conversation right now surrounds the question of does the PM have the power to start the process herself, or whether she needs parliaments consent. The risk of putting it out to the vote is that some people may try and block her, or try and get the UK to reverse the decision, where May herself has already confirmed ‘Brexit means, a Brexit’.

Definitely a case of watch this space, as changes in any of these dynamics, will mean changes and movements in the financial markets.

An opportunity? Potentially. A risk? Definitely.

The markets don’t like uncertainty and if the fundamentals of the ‘exit’ start to evolve, the price action will be volatile.

What is the ‘Post Brexit/ Post EU Regime?    

There seem to be more models offered out and speculated on than a Mark Wilkinson kitchen showroom, but to be completely candid- none of the models seem to be ‘a good fit’ for the UK, as well as the demands from the other side, so a whole new agreement will no doubt need to be negotiated, agreed and drafted.

The Pro Brexit lobby dreamt of both complete access to the EU’s single market, and the crackdown on the movement of free labour.

In short sharp words, we think this can be described as AN ABSOLUTE COMPLETE NO STARTER.

Merkel and Hollande are both very anti this, so the likelihood of being able to find an agreement like this is in kind terms ‘minimal’.

One idea gaining traction currently is what is being described as ‘EEA Minus’. In simple terms this would mean the UK having ‘a little bit more immigration control, and a bit less of a free market’. If you like- a slight compromise from both sides.

A possibility? Quite possibly.

A massive challenge will be thrashing out a future relationship whilst breaking the current one. Britain cannot make formal trade agreements until the EU divorce is complete, and establishing new ties will require the approval of more bodies than the original break up. Therefore- we would suggest that some kind of ‘stop gap’ agreements will need to be made in the interim period.

Again, this takes us back to our earlier point in regards to the markets not liking uncertainty, and we would suggest that any uncertainty will mean some large swings in the prices on the financial markets.

How can one take advantage of this? What exposure should an investor look at? More on this shortly.

Will Our Banking System Suffer and Will They Still Be Able to Operate Across Europe?

‘Banking Passport’ is a term well known and used in and around ‘The City’ and financial services which basically allows lenders based in the UK to raise funds and provide services in the EU.

However, if changes are made to these policies, jobs will no doubt be lost in the UK by some of the employees of major Banks and Institutions.

In fact, Deutsche Bank have come out since the Brexit and said that they expect banks to lose the passporting ability, meaning those who react quickest, may perform the best.

With George Osborne now removed from his office, Phillip Hammond has taken over the Chancellor of the Exchequer remit and he has informed the markets that ‘passporting will remain a very important part of his negotiations’.

However, that’s looking at it from the side of the UK. Will the EU be quite so accommodating, and if not (which many would expect) again- this surely has to create volatility in the market place? Will people sell the GBP on the back of this uncertainty? Buy precious metals as a hedge? Sell Equities?

Only time will tell.

Will Trade Deals Be Struck Outside of the EU?

Once the UK have taken the plunge and are finally out of the EU, it will need to forge its own links and agreements with a whole raft of countries it currently trades with as a member of the EU.

Liam Fox (Trade Secretary), has informed the UK has he is currently ‘scoping’ out many ways to make this as efficient as possible, and as hassle free as one could hope for.

Will the markets be moving hard and fast as we edge closer to these scenarios? We would expect so.

Does Brexit Cause a Systematic Risk?

Some are whispering that the Brexit poses the biggest threat to the financial system since the Lehman Brothers debacle. Others say it’s the biggest challenge to the Western Political Order since World War II.

We feel so far the risk has been contained relatively well, and Central Banks are perched on the side- lines waiting to act (some have already).

But once again, as the Brexit reaches closer to actually happening we could see some shocks ahead. With shocks comes volatility, and with volatility this creates opportunity.

Come wind, rain or shine- we will be looking to take advantage of this for our client portfolios.

Could Scotland Block the Brexit?

Legally it is possible, politically it is very unlikely. Nicola Sturgeon has said that her parliament could block the Brexit, by refusing to give it ‘legislative consent’. Whether Sturgeon would want to veto the democratic will of the entire UK though- is very unlikely.

What Happens to all the EU Citizens Living in the UK?

There are 3.3 Million EU citizens residing in the UK, and of course when the Brexit first happened this created massive uncertainty for them.

However, it seems those who were here before the Brexit announcement will be allowed to stay and if anyone has been here for 5 years or more, they would be able to apply for residency anyway.

SO JUST HOW WILL MSI INVESTMENT BOUTIQUE BE LOOKING TO TAKE ADVANTAGE OF THE  POST BREXIT CLIMATE?

We feel that although uncertainty lies ahead, that being an Investment Boutique who look to take advantage of trends/movements in a short/midterm horizon could result in a very profitable period for us and the clientele we work with.

If GBP appreciated in value for 3 weeks, and then depreciated for 2 weeks, we would like to think we would be right on both sides. It is the nature of how we trade.

Right now, it may not be the time to have an investment portfolio where you just ‘buy and hold’ as ultimately- you’re at the mercy of the markets and the Brexit Decision makers.

Why expose yourself to that?

We believe investors and traders who can adopt a nimbler approach right now, are the ones who will yield return.

As an investment boutique we really couldn’t be bothered either way if FTSE went up, or whether it depreciated in value. All we would care about is that we aligned effectively.

We are great believers that investors need to have that mindset in place right now.

Don’t be loyal to your ‘buy and hold’ investments.

Don’t feel that ‘Equities have to go up’ or that ‘GBP has to go down due to the Brexit situation’. The market doesn’t always act logically; it doesn’t always act fundamentally.

It is strong, it is powerful and it can be driven by sentiment and emotion, and more often than not- via technical trading.

Should you sit on your hands right now and ride out the uncertainty?

We remember clients saying that in 2008, and although some would suggest it was a prudent move, the fact that GBP depreciated 42% in value v’s the JPY in that year- we would suggest not!

You may not be the most active investor in the world, but it’s imperative you have some form of exposure to the world’s largest financial market, which is the FX arena.

What about precious metals?

With the uncertainty in the world, and no one knowing exactly how the Brexit will play out- should investors look towards safe havens? 

It could be shrewd too!!!

So, how does an investor take advantage of the post Brexit climate? How does a trader position themselves to profit?

Well we will be the first to say we don’t have all of the answers, but we certainly feel we have some of them.

The key really in our very humble opinion is to build a portfolio that is DIVERSIFIED ACROSS ASSET CLASSES, DIVERSIFIED ACROSS TRADING STRATEGIES, WITH SMALL MULTIPLE POSITIONS, WITH SMALL RISKS ON EACH TRADE, WITH 4-5 KEY BIASES, AND MOST IMPORTANTLY OF ALL- WITH THE MINDSET THAT YOU WILL EVOLVE WITH THE VOLATILITY, AND EVOLVE WITH AN EVER CHANGING MARKET CLIMATE- AND THAT IS EXACTLY WHAT WE DO HERE AT MSI INVESTMENT BOUTIQUE   

We would be more than happy to articulate to you how to build your portfolio to meet the above criteria. Just give our office a call. What sounds easy in theory, is far more extensive in reality.

BY APPROACHING THE INVESTMENT MARKETS LIKE WE HAVE PRESCRIBED ABOVE, IS IN OUR OPINION THE METOHOLOGY THAT WILL YIELD RETURN MOVING FORWARD.

However, we will go a step further and tell you our exact biases right now as of Tuesday the 30th August 2016.

Currently we have over 20 small positions on portfolio. The positions are spread across the stock markets, the FX arena, and Precious metals. They are diversified, but we also have key biases.

Our Biases right now are the following:

SELL FTSE 100 Index (currently trading at 6850)

SELL S&P 500 Index (currently trading at 2181)

BUY GBP V’S EURO, JPY, AUD, CAD AND CHF

SELL GBP V’S USD

BUY USD V’S JPY

BUY SILVER NEUTRAL GOLD

SELL EURO V’S ALL MAJOR CURRENCIES.

ALTHOUGH WE HAVE BEEN AS CANDID AND AS TRANSPARENT AS AN INVESTMENT HOUSE CAN BE FOR NON CLIENTS, PLEASE DO NOT TRADE/INVEST OFF THE ABOVE INFORMATION.

OUR BIASES ARE SUBJECT TO CHANGE AS THE TECHNICAL CLIMATE EVOLVES.

THE ABOVE DOES NOT EXPLAIN POSITION SIZING, RISK PER POSITIONS, ALLOCATION RULES OR OBJECTIVES, WHICH ARE ALL VITALLY IMPORTANT TO A PROFITABLE PORTFOLIO.

IT IS PURELY A DEMONSTRATION OF HOW WE BELIEVE PORTFOLIOS SHOULD BE STRUCTURED IN THIS CURRENT MARKET CLIMATE.

Will we be right? Potentially.

What if we are wrong?

Very simply- we will evolve with the markets.   

If Equities break recent highs, then they may become BUYS but whilst the technical market climate states they are SELLS, then we will SELL.

Investors need to adapt to the market climate that faces them, and right now that is a climate that has moved dramatically on the back of the BREXIT, has moved in major increments on the back of Central bank stimulus, and with directional changes from one week to the next.

You can adopt a ‘buy and hold’ philosophy, but you may well miss out on moves which a shorter term outlook may have taken advantage of, or as a worst case- your ‘buy and hold’ stance could be badly wrong if the market climate changes for the worse.

We hope you have enjoyed reading how we envisage will be the most prudent way to take advantage of the movements we have seen in the markets Post Brexit, and please do contact our office if you feel your portfolio could benefit from having exposure to a DIVERSIFIED MULTI MARKET, MULTI STRATEGY TRADING PHILOSOPHY.

We hope you feel we could supplement your existing portfolio, and we would be happy to hear from you.

THE BREXIT HAS CREATED SOME FANTASTIC OPPORTUNITIES. THIS FREE REPORT TELLS YOU HOW TO PROFIT FROM BREXIT. ALLOW OUR REPORT TO ASSIST YOU TO TAKE ADVANTAGE OF THEM.

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Tel: +44 (0) 20 3137 4400 E: [email protected]

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