Most people say Brexit is impossible to predict because there are multiple outcomes that are just as likely.
Let's assume there are three most likely outcome and they have equal odds of happening (i.e.each 1/3 chance):
- Hard Brexit/No Deal Brexit - pounds will likely slump by 10%-15%, shares of domestic companies will likely go down;
- Orderly Brexit/May's deal - the pounds will likely go up a bit and domestic shares will go up;
- No Brexit - pounds will surge and so as shares in domestic shares.
The way I see it is that you are getting roughly 2/3 odds. Is there any reason not to buy pounds (with foreign currencies) and to invest in domestic businesses?
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Because gambling on foreign exchange is the ultimate mug's game? And gambling on both foreign exchange and political process is even more of a mug's game?
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Brexit
Corbyn government
or both if that's just not too depressing to think about. Brexit AND a Corbyn government - the ultimate worst case scenario. You'd be better off liquidating everything you own, getting a dinghy and trying for asylum on the continent.
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The problem is that the odds of those three outcomes are not 1/3 each - no one knows the true odds (the closest you can come is looking at things like the Betfair odds). Plus there may be outcomes that aren't on your list of three (like extending A.50). Plus there is no guarantee that the consequences you describe will follow from each of the three outcomes.
It's a fine idea in theory but in practice the odds are not that easy to calculate.
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well apart from getting it all backwards, nice
because if the pound slumps shares may very likely go up as they become cheaper to buy for foreign investors
also, a weak pound means that a multination repatriating money to the UK to declare profits in GBP will have bumper results (granted the following year could be awful)
also
orderly brexit doesn't mean that the pound will rise and no brexit doesn't mean a surge because that is probably all pretty much priced in just now as the 'normal'
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Obviously, I did not mean buying the FTSE 100 index as a whole - as the FTSE 100 generates 80% income aborad a weak pound is good for profits and share prices. I get that.
What I was proposing is buying GBP and buying DOMESTIC BUSINESSES shares at the same time - there are quite a few local pure plays out there (e.g. Lloyds/RBS, housebuilders etc) which would benefit from an orderly Brexit or no Brexit scenario.
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its not a bad idea. Just don’t be sucked into believing you can work out the odds of what will happen etc. If you’re trading the market instead of investing in it just set good stop losses and a clear time horizon and plan for the trade
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If you believe the market will go up you should be selling put options. Otherwise you are just foolishly leaving money on the table.
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