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The day after the EU referendum was one that few could have predicted. Shares fell drastically, only for some to recover losses by the afternoon. Some traders had a field day; some feel like they may have missed out. However, crucially, the result of the referendum means that we now find ourselves in as yet uncharted territory.
With Article 50 looming and Brexit negotiations beginning, the UK could see similar once-in-a-generation trading opportunities arise. We are in an unprecedented period for the UK economy and it couldn’t be more exciting.
This report will not only provide you with an outlook for what to expect from UK-EU negotiations, but also an in-depth analysis of the immediate aftermath of the referendum result and six stocks that could see their share prices move significantly over the course of the next two years as Brexit is played out before the world.
When Article 50 is triggered in March, the door will be opened for the government to negotiate its terms for leaving the European Union, which will include subjects such as trade, determining legal jurisdiction, travel and working rights of UK and EU citizens in the others’ respective territory and, of course, access to the European Single Market, with all 27 EU member states needing to agree on the conditions of Britain’s exit of the bloc.
All of these issues are likely to take the headlines for the next two years, with news likely to be provided almost daily on the progressions of talks – no doubt with some rumours thrown in for good measure! Brexit minister David Davis has told MPs that there are likely to be ‘many, many, many’ votes taking place over that period, so you can be sure that there will be disagreements aplenty in UK parliament. Business as usual, but with added spice.
Subsequently, we could see the UK Index , Pound Sterling and the Euro move significantly in reaction to the flavour of the day, whether that includes agreements being reached or some talks becoming in danger of falling through.
Article 50 is bound by a set timeline, with the process allowed to take a maximum of 2 years. Although Theresa May is hoping that negotiations can be completed in an 18-month timespan, once the deadline is reached, if no final deal has made, the UK will leave the bloc without any negotiated deal and will revert to WTO trade rules.
As the many pieces of the Brexit puzzle come together, we’re here to help you find attractive trading opportunities that could be just around the corner, no matter what the mood of the UK government or the EU.
Over the page we take an in depth look at the hours, days and months that followed the referendum and outline the possible economic implications that Article 50 could bring along once triggered in March.
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June 24, the Friday following the referendum, was a day that will live long in the memory of many investors and traders alike, as the first big shock of 2016 made its mark on financial markets.
The surprise result saw an incredible day of trading on the London Stock exchange, with some stocks falling as much as and a 50% of their opening share price on the day, a feat almost unheard of on a large scale, as names such as Dixons Carphone (58%), Next (50%), Persimmon (42%) and Associated British Foods (45%) suffered. When the dust settled, these blue-chip UK stocks finished the day having experienced one of their hardest sessions in history.
There was no let up as markets reopened the following Monday. Seven stocks all halted and put into auction having fallen over 8% from their opening price, including Banks Barclays (-10.4%), RBS (-14.5%), Housebuilders Taylor Wimpey (-12.3%), Berkeley Group (-10.6%), Crest Nicholson (-10.3%) and Barratt Developments (-12.1%), while Airline EasyJet was the worst affected stock, eventually falling by 19.4% on the day.
As you can see above, the sectors most impacted by the vote were mostly UK-focused or companies that earn profits denominated in Sterling; UK Airlines, Banks, Housebuilders and Retailers in particular were targeted.
Conversely, however, stocks that earn their profits in Dollars were perversely boosted by the positive translational gains; multinational corporations, exporters and producers of buck-denominated commodities.
Now, 6 months down the line, the UK Index has since seen its longest run of record intraday and closing highs in history, and has flirted with 7400. Could we see moves of this proportion again once Article 50 is triggered?
After the triggering of Article 50, the stock market reaction will unlikely be as sharp and immediate as the referendum aftermath – after all, unlike the referendum result, it won’t come as a surprise – however, the divorce negotiation will likely see financial markets be continually influenced by Brexit over the next two years.
The focus for markets will be on what concessions the EU will allow the UK and, as a result, how many of her objectives the PM is able to achieve from the negotiations. The new UK-EU deal could see huge differences in the way Britain deals with the rest of Europe, hurting some companies while benefitting others.
Even more interestingly, once completed, the UK is free to negotiate independent trade deals with other major nations. Already Australia, New Zealand and the US have expressed interest in making new trade deals. The latter, in particular, could greatly affect the UK economy as the “special relationship” breaks new ground.
As a consequence, we are likely to see UK stocks and Pound Sterling FX pairings being impacted considerably by the ongoing stream of Brexit news. Sectors especially influenced will likely include Finance – most notably Banks and Insurers – and Retailers – both Supermarkets and non-food retailers – amongst others
With the Brexit vote still fresh in the memory, we have picked six UK 100 stocks - three that reacted negatively and three that reacted positively - that could offer you a trading opportunity once Article 50 is triggered!
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Bullish: Day by Day, Buy, Target 615p, +20%, (9 Feb)
Average Target: 502p, -1.8% (7 Mar)
Bearish: Exane BNP Paribas, Underperform, Target 400p, -22% (16 Feb)
N.B. All pricing and consensus data was sourced from Bloomberg on 7 March. Please contact us for a full, up to date rundown.[/vc_column_text][/vc_column][/vc_row]
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Bullish: Jyske Bank, Buy, Target 1350p, +42% (24 Jan)
Average Target: 1014p, +6.4% (7 Mar)
Bearish: Panmure Gordon, Sell, Target 820p, -14% (24 Jan)
N.B. All pricing and consensus data was sourced from Bloomberg on 7 March. Please contact us for a full, up to date rundown.[/vc_column_text][/vc_column][/vc_row]
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Bullish: Peel Hunt, Buy, Target 210p, +12% (28 Feb)
Average Target: 189p, +0.7% (7 Mar)
Bearish: Liberum, Hold, Target 150p, -20% (1 Mar)
N.B. All pricing and consensus data was sourced from Bloomberg on 7 March. Please contact us for a full, up to date rundown.
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Bullish: Barclays, Overweight, Target 625p, +35% (1 Mar)
Average Target: 515p, +11% (7 Mar)
Bearish: Natixis, Neutral, Target 400p, -14% (8 Feb)
N.B. All pricing and consensus data was sourced from Bloomberg on 7 March. Please contact us for a full, up to date rundown.[/vc_column_text][/vc_column][/vc_row]
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Bullish: Goldman Sachs, Attractive, Target 2000p, +46% (7 Jul)
Average Target: 1446p, +5.9% (7 Mar)
Bearish: RBC Capital Markets, Underperform, Target 1090p, -20% (28 Feb)
N.B. All pricing and consensus data was sourced from Bloomberg on 7 March. Please contact us for a full, up to date rundown.[/vc_column_text][/vc_column][/vc_row]
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Bullish: J.P Morgan, Overweight, Target 1100p, +13% (14 Dec)
Average Target: 956p, -2.0% (7 Mar)
Bearish: Societe Generale, Sell, Target 790p, -19% (16 Jan)
N.B. All pricing and consensus data was sourced from Bloomberg on 7 March. Please contact us for a full, up to date rundown.[/vc_column_text][/vc_column][/vc_row]
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Whether you see UK stocks going up or down for the remainder of the year, tradable opportunities will present themselves regularly. We’re here to help you weed them out and capitalise on them. Accendo Markets can help you increase your profit potential with the use of leveraged instruments such as CFDs, a flexible alternative to traditional shares that is currently exempt from UK stamp duty.
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The example above shows how buying 1,450 shares in British Land @ £6.90 requires an outlay of around £10,000 plus commission (see left-hand box), while the same exposure via a CFD requires about £500 plus commission (see right-hand box). If a trader invests in British Land, one would assume they believe the share price is likely to move in their favour. After considering the ‘worst case scenario’ and assigning funds to cover it, the trader may conclude there’s little point in exposing the full £10,000 to the BLND shares - some of that capital could be put to good use elsewhere in the markets. (Source: IG, Prices indicative)
If you had, say, £10,000 to invest in the stock market, you could deposit that amount into a share dealing account and purchase shares in a company. You would pay commission to open the position, 0.5% in stamp duty and the full £10,000 will be tied up in your chosen shares with any profit or loss based on that exposure. The same £10,000 worth of exposure can be secured with a CFD for a fraction of the initial outlay thanks to leverage, with the risk and reward the same as if £10,000 worth of traditional shares were held. But should you not be interested in leverage, you can always treat CFDs like shares. Simply deposit £10,000 into a CFD trading account and take the equivalent CFD position which will tie up just £500 (note that overnight financing costs will still apply). The remaining £9,500 is not tied up, so you can use some of that to take advantage of another short-term opportunity elsewhere, or simply leave it on the account to support any losses. Best of all, using a CFD means you pay no stamp duty!
Think shares will rise? Take a long position by buying CFDs (buy low, aiming to sell high). Think they’ll fall? Take a short position by selling CFDs (sell high, aiming to buy low). For a more detailed rundown of CFDs, their mechanics, associated costs and some trading scenarios download our ‘Comprehensive Guide to CFDs’ here.
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This research is produced by Accendo Markets Limited. Research produced and disseminated by Accendo Markets is classified as non-independent research, and is therefore a marketing communication. This investment research has not been prepared in accordance with legal requirements designed to promote its independence and it is not subject to the prohibition on dealing ahead of the dissemination of investment research. This research does not constitute a personal recommendation or offer to enter into a transaction or an investment, and is produced and distributed for information purposes only.
Accendo Markets considers opinions and information contained within the research to be valid when published, and gives no warranty as to the investments referred to in this material. The income from the investments referred to may go down as well as up, and investors may realise losses on investments. The past performance of a particular investment is not necessarily a guide to its future performance. Prepared by Michael van Dulken, Head of Research