The D Day for Brexit and May is certainly here.
The GBPUSD overnight volatility index has spiked higher over past hours as the Brexit mess continues.
The 1-month ATM GBPUSD is elevated, but actually trades below the levels we saw late last year.
FTSE 100 volatility index (orange) is also elevated, but has traded down with the recent implosion in global equity volatilities. The charts show FTSE 100 volatility index versus the 1-month ATM GBPUSD volatility (white) since the referendum.
Note that the FTSE 100 volatility index has come off lately while GBPUSD 1-month ATM volatility currently takes new highs for the year. Do you trust FX or equity volatility?
Below is a list of the most exposed companies (published last year):
Benefit from Brexit:
Associated British Foods (ABF LN): Over 60% of its Primark unit comes from Europe. Its other business such as its ingredient business has operations from likes of China and Africa which should also hedge its exposure. ABF has much less UK exposure and peer Next (NXT LN).
Arrow Global (ARW LN): As one of the biggest debt collectors/purchasers in the UK it will benefit if a downturn hit the UK economy and banks have to sell off defaulted loans at discounted prices.
Aveva Group (AVV LN): The technology and software company has global presence. It receives lion share of its revenues outside of the UK. It would benefit if the GBP weakened in the event of a Brexit.
Burberry (BRBY LN): Burberry is a global company. It has only 10% topline exposure to the UK, while over 50% of its operating expenses are in pounds. If the GBP drops post Brexit, it will be quite beneficiary for Burberry.
Rentokil (RTO LN): The pest control company receives over 90% of its revenue from outside of the UK. Any decline to the pound would be positive.
Vodafone (VOD LN): Even though it is a UK company, over half of its revenues and profits are in Euros and it would benefit from a weaker GBP.
3i (III LN): 3i is one the biggest Private Equity and Venture fund in the UK. Only 20% of its revenues emanate from the UK, while the rest is from Europe and North Africa. Also, almost 50% of its exposure is in the more defensive consumer space.
Loss from Brexit:
Travel and Leisure: Post Brexit, UK based airline companies would have to re-assess their European routes to abide by EU laws. In addition, they would have to re-calculate fares, routes and costs of visas for their customers. Finally a weaker Pound would make it more expensive for the British to vacation abroad. The main companies to focus on in this sector are;
Banks / Financial Institutions: If there is a hard Brexit – UK based banks will lose all the business that is tied to EU. UK based banked will no longer be able to do EU related business if do not move their HQ. Subsequently all UK based banks will mostly likely lose major part of their business (Investment Banking) that is very profitable. Companies to keep on the radar are;
Property Investment / Real-Estate / Construction Companies: Housing markets are generally shaped by wages and interest rates. A hard Brexit would put pressure on wages. Increased trade barriers would make goods and services more expensive. Bank of England noted if a hard Brexit comes to fruition, the central bank would have to raise rates. This would negative impact on the housing market. Furthermore, if Brexit happens, EU companies that have big physical presence in UK would leave and take their employees with them. A as result, there would be increased supply of both office and residential properties in all of UK. Companies with big exposure to the general UK real-estate market are;
Retail: Increase in consumer prices (see above) will lead to UK households having less disposable income to spend. The continued weakening of GBP would drive up costs for retailers as they import lot of the goods they sell. All of this would negatively affect consumer confidence which will hit the retail sector. Companies in retail to follow are;
Source: charts by Bloomberg
