With Brexit Recession Risks Waning, U.K. Equities Could be Primed for Rally

In recent testimony before a select committee in the British Houses of Parliament, the Bank of England governor Mark Carney stated that the risk of recession since the BREXIT vote in late June has fallen significantly.

According to an article on the hearings, Bloomberg reported that Mr. Carny said “In the light of all the events since the referendum, since the evening of the 23rd, I am absolutely serene.”

Wow. That’s in direct contradiction to all the nay-sayers, who before the referendum and even immediately afterwards, warned the country and by extension the global community, that a vote for Brexit was a vote for disaster. But, as usual, they turned out to be alarmists with nothing better to do than consider their own personal interests.

I agree that the latest economic numbers out of Britain present a muddled picture, with manufacturing output falling at its fastest pace in a year in July, according to the London Daily Telegraph, but the services sector posted the biggest rebound in 20 years, again as reported by the same paper.

For those who read my articles on a fairly consistent basis, you will remember that I was and still am pro-Brexit and that I also was surprised at how close the vote was. However, since then consumer confidence has picked up, as I thought it would, and a full two thirds of the country now believe that leaving Europe was the right decision.

Right after the referendum, as expected there was panic, the fear of the unknown, Armageddon and all that, and newspapers that are pro-Europe like the Guardian were pleased to announce that consumer confidence initially had plunged the most in 26 years. But, after things began to settle, and everyone emerged from their bomb shelters and again congregated in the streets, consumer confidence soared again at its fastest monthly pace in three and a half years.

According to the Centre for Economics and Business Research (CEBR) “the data slightly punctures the arguments of those who predicted immediate economic Armageddon following a Brexit vote.” That warms the cockles of my heart.

And how about investment opportunities? There are several single country ETFS concentrating on the United Kingdom but the ones I would like to bring to investors’ attention are lesser known, but I believe will perform remarkably well in the years to come. The first is the WisdomTree United Kingdom Hedged Equity Fund (DXPS) and the iShares Currency Hedged MSCI United Kingdom ETF (HEWU). There again, these are my choices, but I believe any equity or currency fund you choose is bound to pay off as Britain will gain tremendously in the coming years, and the EU starts to devolve.

About the Author: Peter Kohli

peter-kohliPeter Kohli is President of DMS Advisors where he is involved in investment research, and in particular the developing markets. He also writes a blog for the Nasdaq website and for Frontera News. Before that, he was CEO/CIO of DMS Funds. As such, he managed the Firm’s operations, including index selection and fund development, and was actively involved in all of DMS Funds’ business development efforts. Earlier, Peter held a variety of financial services-related positions, including a financial planner. Peter holds a Chartered Financial Consultant (ChFC) designation from The American College (Bryn Mawr, PA) and a BA in Mathematics from The Open University (Milton Keynes, England).

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