How Aussie investors can cash in on Brexit opportunities
After years of false starts, Britain has officially "Brexited" the European Union, and Aussie investors are in a prime position to take advantage of it.
Britain's exit from the EU, while now formalised with a set time frame, isn't complete. It's left the political union, but transition out of the customs union will take another year. It's this process that will determine the overall economic impact on Australia.
The impact will depend on what sort of trade deal the UK reaches with the EU, Shane Oliver, AMP chief economist, tells Money.
"If it's a de-facto continuation of the current situation then there will be no impact on Australia, but if the UK becomes free to negotiate trade deals with other countries from next year then there may be some opportunities for Australia in the form of a free-trade deal with the UK, allowing better access for Australian farmers and resources."
The depressed earnings the British market has suffered because of Brexit is providing new opportunities for investors.
"The UK market has been a pretty huge underperformer for a long time," says Gregory Kolb, chief investment officer of Perkins Investment Management in the US. "And the recent election result may bring a more positive outlook for earnings and valuation multiples going forward."
Kolb fancies banks (Lloyds), real estate agents (LSL Property Services), building products (Travis Perkins) and car dealers (Lookers).
Aussie investors can also invest in companies listed on the ASX that are exposed to the UK market, which is free to trade with the rest of the world, unconstrained by EU requirements.
"One of the better performers of those trading on the UK outlook is Virgin Money (ASX: VUK), a banking operation in the north of UK," says Michael McCarthy, chief market strategist at CMC. "It hit a low below $2 a share, then hit a high above $4, and has since moderated to around $3."
Then there's the risker option of trading sterling, which McCarthy says has served as a good barometer of market sentiment towards Brexit. "The initial vote in 2016 initiated the biggest currency fall I've seen in 35 years in the market, but the certainty and stabilisation around the shape of Brexit has seen the currency rally."
Investors can gain exposure to sterling a number of ways: purchasing it directly, trading contracts for difference or setting up a forex margin account.