The repercussion from Brexit – the vote by the people of the United Kingdom to leave the European Union – continues to cause uncertainty in global markets.
Brexit wiped off US$2 trillion in stock market value on 24 June 2016. It now holds the ignominious record as the most damaging and shocking one-day stock-market drop. It was even more destructive than the collapse of US investment bank Lehman Brothers during the 2007-09 financial crisis.
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The global loss triggered by Brexit widened to US$3 trillion on 27 June 2016, as top credit-ratings agencies S&P, Moody’s and Fitch all cut UK’s credit rating.
Three popular principles to deal with Brexit
Investors might be wondering where to hide from this storm, if they should be hiding at all. Here are three popular strategies. They have their advantages and drawbacks:
- Reconsider your stock holdings that have exposure to either the UK or Europe
- Look at stocks that have a track record of good performance in bad conditions
- Buy insurance against continued worsening of the situation
Let’s say you own GL Ltd (SGX: B16), which generates around 90% of its revenue from its hotels operation the UK. You are exposed to events in the EU, both good and bad. Property developers such as Ho Bee Land Ltd (SGX: H13) and CapitaLand Limited (SGX: C31) also have significant presence in the UK. Unless you have a crystal ball, it will not be easy to predict what might happen next.
If you own consumer staples such as Sheng Siong Group Ltd (SGX: OV8), you are unlikely to be exposed to Europe. Sheng Siong derives all of its revenues from Singapore that is, until its first Chinese store opens at the end of this year. Since its listing in 2011, the supermarket chain has grown its profit from S$42 million in 2012 to S$57 million in 2015. It has also been paying dividends for the last five years.
Aside from stocks, some market pundits advocate insurance in the form of gold. Gold exposure can be achieved from the SPDR Gold Shares ETF (SGX: O87) in Singapore’s stock market. But, the downside is that gold does not pay a dividend.
A Foolish conclusion
The Straits Times Index (SGX: ^STI) has since recovered from the Brexit palaver. (It was at 2,794 points on 23 June, the day the UK held its vote to leave or remain in the UK, and is currently at 2,858 points.) However, no one can predict what might happen next.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Ong Kai Kiat doesn’t own shares in any companies mentioned.