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4 Stocks That Will Fall if Soros is Right About Brexit
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Markets have been optimistic with a little more than a day to go before the EU referendum. Recent polls have shown those in favor of remaining within the EU hold a slight edge. However, it remains to be seen whether the pollsters have got it right
Meanwhile, George Soros has added his voice to the chorus sounding out a warning about the impact of a Brexit. The billionaire investor is particularly negative on the impact of such an outcome on the pound as well as the British citizens. However, several British and U.S. companies will suffer if a Brexit actually occurs.
Soros Sends Out Strong Warning
A substantial decline in the value of the pound, falling household income and ultimately a recession may be the possible consequences of a Brexit, said Soros. His editorial article in The Guardian said too many voters are thinking that leaving the EU will not result in serious financial consequences for them. Describing such an attitude as “wishful thinking,” Soros quoted figures from the IMF to bolster his views.
According to the IMF, households would stand to lose between £3,000 and £5,000 pounds on an annual basis. That translated into a figure between $4,400 and $7,335. This would largely be due to a plummeting pound. Known as someone who is an authority on the British currency, Soros predicts that the pound will fall by 15% to 20%.
While the fall in the pound in 1992 actually sparked off a recovery, Soros believes that Britain has little to gain this time around. Firstly, the Bank of England will be unable to reduce rates since they are already quite low. Additionally, the country has a substantial current account deficit and is unlikely to experience strong cash inflows. But most importantly, a weaker currency will not boost exports because of the uncertainty triggered by a “Leave” vote.
Brexit Could Singe Global Markets
Following its policy meeting earlier this month, the Federal Reserve decided to keep key rates unchanged. Fed chair Janet Yellen said that “Brexit” is likely to have "consequences for economic and financial conditions in global financial markets" (read: 4 Utility Mutual Funds in Play as Fed Keeps Rates Unchanged). Bank of America (BAC) has stated that global interest rates are already at an all-time low. Additionally, the financial major thinks they could fall further.
A vote in favor of Brexit would result in higher uncertainty, leading to rates moving even lower. This will result in a flatter yield curve, reducing the premium received for investing in longer dated bonds. As a result, yields on short term and riskier bonds would rise resulting in significant trouble for companies as well as countries like Spain, Italy and Greece. Banks would also find the going tough.
Meanwhile, central banks across the world would find it difficult to reduce key rates further. Stocks may also suffer from the uncertainty generated in the aftermath while a stronger dollar and yen would present market participants and governments with yet another challenge.
4 Stocks That Could Plunge
BP plc (BP - Free Report) is one of the several large British companies which have been urging citizens to opt for remaining within the EU. Former chief executive of the oil behemoth John Browne has argued in a recent Wall Street Journal article that exiting the economic bloc would lead to losing the confidence of international trading partners. This is in keeping with the opinions of most large British companies who are urging voters to join the “Remain” camp (read: 5 British Stocks to Watch as Brexit Vote Looms).
JPMorgan Chase & Co. (JPM - Free Report) is among the many banks which would suffer several serious challenges in the event of a Brexit. Like most other large international banks, it views the United Kingdom as the preferred entry point into the EU. Now, CEO Jamie Dimon will face the prospect of moving a large part of its nearly 16,000 British employees. Dimon has described a Brexit as a “terrible deal” for the United Kingdom.
eBay Inc. (EBAY - Free Report) is one of the companies with the largest sales exposure to Britain. It stands to lose heavily from a “Leave” vote. A plummeting pound would result in a large decline in repatriated earnings since the dollar will grow even stronger as a result.
Caterpillar Inc. (CAT - Free Report) is one of the companies which have invested heavily in Britain. Its British operations account for 9,000 of its employees. The company has 16 plants within Britain. Most of the goods produced here are exported to Europe and other countries across the world. But that state of affairs would cease to exist in case Britain decides to exit the E.U. (read: 5 Stocks to Combat Brexit Fears).
Bottom Line
Going by the latest polls, Britain may opt to ultimately remain within the EU. However, the vote itself has sparked off a major change in the thought process of senior management in several companies. Even if a Brexit doesn’t occur we could be seeing major changes in the industrial landscape of Britain in the near future.
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4 Stocks That Will Fall if Soros is Right About Brexit
Markets have been optimistic with a little more than a day to go before the EU referendum. Recent polls have shown those in favor of remaining within the EU hold a slight edge. However, it remains to be seen whether the pollsters have got it right
Meanwhile, George Soros has added his voice to the chorus sounding out a warning about the impact of a Brexit. The billionaire investor is particularly negative on the impact of such an outcome on the pound as well as the British citizens. However, several British and U.S. companies will suffer if a Brexit actually occurs.
Soros Sends Out Strong Warning
A substantial decline in the value of the pound, falling household income and ultimately a recession may be the possible consequences of a Brexit, said Soros. His editorial article in The Guardian said too many voters are thinking that leaving the EU will not result in serious financial consequences for them. Describing such an attitude as “wishful thinking,” Soros quoted figures from the IMF to bolster his views.
According to the IMF, households would stand to lose between £3,000 and £5,000 pounds on an annual basis. That translated into a figure between $4,400 and $7,335. This would largely be due to a plummeting pound. Known as someone who is an authority on the British currency, Soros predicts that the pound will fall by 15% to 20%.
While the fall in the pound in 1992 actually sparked off a recovery, Soros believes that Britain has little to gain this time around. Firstly, the Bank of England will be unable to reduce rates since they are already quite low. Additionally, the country has a substantial current account deficit and is unlikely to experience strong cash inflows. But most importantly, a weaker currency will not boost exports because of the uncertainty triggered by a “Leave” vote.
Brexit Could Singe Global Markets
Following its policy meeting earlier this month, the Federal Reserve decided to keep key rates unchanged. Fed chair Janet Yellen said that “Brexit” is likely to have "consequences for economic and financial conditions in global financial markets" (read: 4 Utility Mutual Funds in Play as Fed Keeps Rates Unchanged). Bank of America (BAC) has stated that global interest rates are already at an all-time low. Additionally, the financial major thinks they could fall further.
A vote in favor of Brexit would result in higher uncertainty, leading to rates moving even lower. This will result in a flatter yield curve, reducing the premium received for investing in longer dated bonds. As a result, yields on short term and riskier bonds would rise resulting in significant trouble for companies as well as countries like Spain, Italy and Greece. Banks would also find the going tough.
Meanwhile, central banks across the world would find it difficult to reduce key rates further. Stocks may also suffer from the uncertainty generated in the aftermath while a stronger dollar and yen would present market participants and governments with yet another challenge.
4 Stocks That Could Plunge
BP plc (BP - Free Report) is one of the several large British companies which have been urging citizens to opt for remaining within the EU. Former chief executive of the oil behemoth John Browne has argued in a recent Wall Street Journal article that exiting the economic bloc would lead to losing the confidence of international trading partners. This is in keeping with the opinions of most large British companies who are urging voters to join the “Remain” camp (read: 5 British Stocks to Watch as Brexit Vote Looms).
JPMorgan Chase & Co. (JPM - Free Report) is among the many banks which would suffer several serious challenges in the event of a Brexit. Like most other large international banks, it views the United Kingdom as the preferred entry point into the EU. Now, CEO Jamie Dimon will face the prospect of moving a large part of its nearly 16,000 British employees. Dimon has described a Brexit as a “terrible deal” for the United Kingdom.
eBay Inc. (EBAY - Free Report) is one of the companies with the largest sales exposure to Britain. It stands to lose heavily from a “Leave” vote. A plummeting pound would result in a large decline in repatriated earnings since the dollar will grow even stronger as a result.
Caterpillar Inc. (CAT - Free Report) is one of the companies which have invested heavily in Britain. Its British operations account for 9,000 of its employees. The company has 16 plants within Britain. Most of the goods produced here are exported to Europe and other countries across the world. But that state of affairs would cease to exist in case Britain decides to exit the E.U. (read: 5 Stocks to Combat Brexit Fears).
Bottom Line
Going by the latest polls, Britain may opt to ultimately remain within the EU. However, the vote itself has sparked off a major change in the thought process of senior management in several companies. Even if a Brexit doesn’t occur we could be seeing major changes in the industrial landscape of Britain in the near future.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>