We all vividly remember the Brexit vote, right at the start of the summer, which created panic in markets. That lasted only two or three days, as all markets recovered very quickly.
Surprisingly, just one week after the Brexit vote, the stock market in Britain started rallying strongly. Since then, Britain’s stock index has done extremely well. It can even be considered one of the outperformers.
Now that the summer has ended, right at the start of the fall, we observe that the London stock index is breaking out to all-time highs. You read that correctly: the Brexit resulted in British stocks to outperform all other stock indexes, with a rise of more than 20% since the start of the summer.
Many are wondering how that is possible, given the extreme pessimism when the Brexit news hit the wires. Though it could seem counterintuitive, the simple answer is that Britain’s stocks market has risen in conjunction with a collapsing Pound. As the British currency has lost significant value, stocks have gained in absolute terms. However, for British people, holding and trading in Pound Sterling, their shares have gained in value while their currency has lost value, so it is more or less a status quo for them.
The real winners are the investors who have invested in a currency hedged ETF of the London stock exchange.
This has become a very interesting story, with lots of insights of how markets can evolve and how positions should be thought through thoroughly in order to benefit from the opportunities in markets.