A quick update on Brexit's implications for the markets.... and some lessons
Prabal Basu Roy
Sloan Fellow-London Business School, PE Investor,Board member,Advisor to Board Chairpersons; former Group CFO; media commentator
This is a quick update at 1130 am IST
The futility of listening to the less than mediocre financial press and the so called " market experts".... who have disappeared on TV today by the way.......is evident from the market mayhem following the Brexit vote ( Dow futures 17335 -580, S&P 2016 -90, Nifty 7960 -210)
This is a fundamental change in the global economic set up and do not listen to TV anchors or equity analysts from brokerages or fund managers .... no one knows the implications especially in the short term.
Some immediate implications for the financial markets in my opinion :
1) There has been huge buying going into the vote globally spurred on by excitable brokers and hyper active market experts/ anchors : this will unwind now and create large swings. Also US and Indian markets do not have a valuation comfort any more.
2) This is not a Lehman moment : its implications are far more serious over the long term though as it strikes at the very basis of prosperity in the economic order as we knew it ....free movement of people and trade in the post war period.Will explain in a later post, time permitting. However, the good thing is the financial system is not frozen up as what happened in 2008 Lehman crisis and is, thus, not a liquidity event
3) The global financial system is adequately funded and most funds are heavily in cash....which will provide bargain hunting opportunities and provide some support
4) Recession in the UK is a given.... and a risk off globally. India will not be isolated from risk of outflows....our fundamentals though will allow out performance wrt other emerging markets. Turmoil in the currency markets is also a given...the yuan, given its recent linkage to a basket of currencies, will be closely watched as its implications will be severe globally.
5) Asset prices collapse will have implications and its linkages to various asset classes in the global markets NO ONE quite understands . Also we must remember that the central banks have very little ammunition today ( Germany and Japan already at negative interest rates ) than what they had in 2008.
Fiscal expansion across the world is now a distinct possibility as this is the only tool Governments have to pacify the anger unleashed on them.....therefore inflationary pressures will be back and high inflation prone countries like India will be at some risk ( especially as Governor Rajan, with his focussed inflation targeting zeal, will not be at the helm ) of giving up on its hard fought victory over the last few years.
All this is not good for equity markets. We will now see a market adjustment process which is necessary over the medium term between expectations and valuations in the new paradigm : and Governments will have to ensure that this process is orderly.
In my earlier article few weeks earlier, I had called for a top of the S&P around 2130 (https://www.dhirubhai.net/pulse/mid-term-update-financial-markets-prabal-basu-roy?trk=mp-author-card).....and a serious correction in the future. Not many had forecasted this at that point.
Brexit could well have been the trigger.
(PRABAL BASU ROY)
A Sloan Fellow from the London Business School and a Chartered Accountant, the author presently manages a PE fund and has formerly been a Director and Group CFO in various companies
Hello, I was thinking about that one and some other features such as independence from The EU in terms of autonomy of monetary and fiscal policy both. It is certainly not easy to counteract domestic issues when a nation is directed by some very different goals from a body with a different perspective and most important... a different short - run scenario.
Associate Team Member at FIAT india auto. pvt. ltd.
8 年where is going britain not great
Tax Officer
8 年Why there is so much whoo and cry. Brexit is people's choice and things are changing like this only. These are the events which gives new paths to the business cenerio. The shock has already cushioned.
Well bulleted Prabal. A balanced and straight view is absolutely the need of the hour. While the media pundits and the stock markets will sway wildly depending on which side of the camp one has sworn allegiance to, the political and economic and also social ramifications would be a bit slow but steady in influencing the course ahead. Biggest challenge probably is for Britain to see if it has the resilience and muscle to pull this coup through. Look forward to your later posts on this.
Retired
8 年Crude price will be southbound. India's import bill will reduce. Initially dollar will rise to a limit thereby reducing US export. Ultimately India will emerge stronger as European countries will increase trade with India.