Brexit – Should I stay or should I go?

Melborne, 20 June 2016

Well, finally we are here…Thursday, 24 June we will know the results.

The latest polls (after the death of MP Cox) give a slight advantage to the Bremain outcome.

The issues with this, and the previous polls, are that polls are very small (the average sample is 2,000 people on a population of 65 million) and also can be easily biased by targeting specific suburbs. All polls are within 5%which is the margin error bracket…so, in my opinion, they tell you nothing.

The reality is that Bremain is much stronger than Brexit, but the data shows that the Brexit voters are quite sure to go to the polls, while Bremain voters – not so much.

My pure technical analysis for the UK FTSE produces this set of data (Short Term), using available information from top tier research houses:

Brexit, Referendum vote YES Bremain – Referendum vote NO
·      UK Index -16% ( it would approach 5,000)

·      Gold target USD 1,350/1,500

·      UK Pound could dive 15-20%

·      USD, YEN, AUD strengthen

·      Euro and Emerging Countries weakens

·      UK Index +7%

·      Gold target USD 1,250/1,200

·      UK Pound +5-7%

Practically returning where it should be

In the Brexit case, the effect on the rest of the world will be felt quite strongly as the UK is the third country by exposure in the SP500.

US Dollar and Australian Dollar, Japanese Yen will get stronger and the markets in general would dive by 15%. This will create issues for country like China (pegged to the USD) and Australia (which needs a weak AUD).

Since Britain is the third largest country exposure in the US SP500 – it is still 2.9% and the revenue exposure in no more than 10%) – it is the uncertainty effect that creates a big issue.

“There will be contracts and agreements that would take years to review, resettle and a lot of confusion… the market hates confusion.” – Fabio Ferro, Principal, Scala Private Wealth

Bremain is not all good…aside the “momentary joy”, the UK would be forever linked to the European fortunes which are clearly in decline. Just the existence of the referendum has bolstered anti-European parties. Italy has concluded a regional vote, and apparently as ballots are still being counted, a swing to the anti-European party MI 5 has happened. The Spanish general elections are 26 June!! And the French and German elections are in 2017 – it could just be a delay of the inevitable.

If, in the negotiations Britain gets a good deal?? And why should only Britain gets a special treatment?

In effect I side with Ms Wallstrom, Swedish MP and ex European Commissioner and Ms Linde, Swedish Minister for Europe, that have been quoted to have said that UK PM Cameron “…has been a self-serving opportunist that risk a major crisis for his own political issues.”

My conclusions:

  • Bremain is more likely win
  • A Brexit option would create a target for the SP500 of 1,820 and ASX200 4,400, at least.
  • US Dollar, Gold, Australian Dollar, & the Yen would strengthen.
  • British Pound and Euro will be shattered.
  • A Bremain will have more a fleeting positive effect – but most likely the markets will go back to where they were
  • In any case volatility will keep the situation quite fluid

by Mr. Fabio Ferro, Principle, Scala Private Wealth, contributing columnist

For more opinions and articles by Mr Fabio Ferro, follow him on twitter @ffferro999 and visit his website at www.scalaprivate.com.

Mr. Fabio Ferro is a contributing columnist to Far From TV. The information and opinions contained in this article do not constitute a recommendation by Mr. Ferro. This is general advice only. It does not take into consideration your personal financial situation, goals or needs. You must consider the appropriateness of the advice prior to acting on this information. Before acting on any information contained in this article seek advice from your financial adviser and read the Product Disclosure Statement/Financial Services Guide of the product you are considering prior to investing in that product.

 

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