What goes up, must come down, but equally it might go up again – and that’s where stock markets get interesting. In the weeks and months following its vote to leave the European Union, the UK’s stock market and currency bobbed around like corks.
No one could decide what the result meant – no one wanted to stay in the top jobs in Westminster to see the project through either – and this made everyone in financial markets jittery.
A year or two on, things – in financial markets, at least – have calmed down. Sterling has settled, albeit at a lower level against the euro and dollar than it was before the vote, and the FTSE seems to have found stability.
But know this cannot last – remember the adage about the calm before the storm?
As the eleventh hour of negotiations between Brussels and Westminster approaches, this game of diplomatic chicken must come to a head.
It could whip up a storm in financial markets, too, providing those with a strong nerve an opportunity. While financial markets are never a dead cert, they could follow a well-trodden path.
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In the weeks approaching the March 29 deadline – and even after if no deal is reached – it is likely we will see swings in the value of the pound as confidence in the UK economy going forward falters.
Should this happen, global investors will eye UK listed stocks and look out for bargains. This buying activity will have nothing really to do with any change in what the company itself is worth, rather these investors will consider they have got themselves a good deal with the change in currency price.
It is a bit like going on holiday to a developing country and buying a Coke or other western brand for a fraction of the price. It is the same product, the weaker currency you are using just makes it cheaper for you.
These investors also know that many of the companies listed on the London Stock Exchange earn their money around the world rather in the UK, so their actual revenues are not affected by a plunge in the value of the pound.
Those buying stocks whose base currency is sterling will not get this uplift, of course, but it is still possible to buy into the wave. By carefully looking at the companies listed in London and keeping an eye on what experts say is the right value, savvy investors can swoop in and buy a good quality company at a discount price and hold it until the waves subside.
And remember, stock traders enjoy dividends paid early, no ticket fees and no stamp duty (on UK stocks) as we absorb this cost.
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