5 Ways to Profit from Brexit

For many investors the result of the United Kingdom’s “No” on the EU membership referendum on June 23rd came as a surprise. Since the polls had consistently been …

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For many investors the result of the United Kingdom’s “No” on the EU membership referendum on June 23rd came as a surprise. Since the polls had consistently been close to 50/50, only very few market participants dared to trade during the vote.

In fact, many professional investors such as hedge funds and algorithmic trading firms, ceased trading and hedged their positions prior to the referendum and then rapidly entered the market again after the result was announced. 

Not all investors were able to act swiftly enough to profit from the market reaction after Brexit. In case you were among them, there is no reason to fret. There are still plenty of opportunities to profit from the event.

Go for gold

Gold has always been considered a safe haven for investors. In the wake of Brexit the precious metal gained significantly, hitting a two-year high in early July at $ 1365,96. This trend is likely to continue.

Gold Price

The impact that the Brexit vote will have on the British and European economy is still unknown and difficult to quantify. The remaining EU members have announced that the UK will need to leave the European Union as soon as possible, but the legal implications are still unclear. Nobody knows yet what kind of deal Britain will get once the agreements are re-negotiated.

This justified sense of uncertainty is motivating investors to place their capital in safe havens like gold, which is driving up the precious metal’s price. Short-term investors can trade gold using futures. Investors who would like to invest for a longer time span can do so using Gold ETFs.

Quality stocks at low prices 

Despite the fact that some British stocks were severely hit by the news of Brexit, the FTS 100 Index bounced shortly after. Investors seized the opportunity to snap up quality British stocks at a discounted price.

FTS 100 Index

Opportunities aren’t just created on the British market. Many European and US stocks were unjustifiably punished by the event and temporarily sold off, too.

Aside from that, the high degree of uncertainty causes the markets to react very strongly on any significant news on UK politics. This kind of short term volatility is a blessing for traders.  Market participants who’ve identified such short-term opportunities, can profit from them by trading assets available for binary trading, such as a multitude of stocks, GBP or equity indices.

Buy into British real estate

Post-Brexit the Pound Sterling hit a 30-year low against the US Dollar, which now makes prime British real estate relatively cheap for foreign investors. Due to the high degree of uncertainty, many institutional investors began selling off their holdings in British real estate funds. This even caused some of them to temporarily halt redemptions.

Long-term oriented investors now have the opportunity to buy into listed British property funds and REITs at a relatively low price. Many British real-estate securities now boast impressive dividend yields and despite Brexit, their rental income is likely to remain solid. The prices of these funds may not recover quickly, but they do present an excellent opportunity for patient investors.

British companies with international revenue

Aside from trading British stocks based on short-term political and economic news, there’s also a strong case for investing in UK stocks in the long run.

In some cases, the effect of Brexit on British companies’ business isn’t likely to be very large. This is especially true for international corporations that don’t entirely depend on revenues generated in the UK and EU.  Pharmaceutical companies such as GlaxoSmithKline or AstraZeneca generate their income globally. Thanks to the weak pound, such solid dividend stocks have become relatively cheap for foreign investors.

Betting on the GBP

Not every investor has the time and patience to analyze British stocks in detail and follow the news on UK-EU relations. Passive investors who have a very long term investment horizon can profit from Brexit by simply betting on the British Pound. Currently trading at $1.30, some analysts believe this is the price level the GBP will remain at, while other see it weakening further. The overall analyst consensus for the Pound is negative, with a recovery not in sight in the short run. 

GBP

Aside from the economic development, investors also closely monitor the Bank of England’s interest rate policy. A rate-cut is currently very likely, which could weaken the currency further.

In any case The UK’s situation will remain interesting. There is no historical precedent for leaving the EU. Scotland is now considering a referendum to separate from the UK in order to remain in the EU. Some people even think that while exiting the EU, most of the UK’s agreements with it will essentially remain the same.

No matter what happens next, many more investment opportunities are likely to arise.

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