It’s a pleasing night for a trader. The board shows a sea of green. And it’s coming from the UK.
Two of our recommended picks in our Lifetime Wealth Newsletter are up sharply — one 6%, the other almost 4% in the course of an evening. We’re now up 16% and 9% on these two picks since recommending them back in July. And they’re scheduled to yield dividends of over 8%.
So my first thought is that there’s been a very positive Brexit announcement. We’ve long been writing here that this event may not be as bad as the markets have priced. And that we’re seeing value in the soft pound and in certain stocks in the FTSE.
But while Merkel is warning of a Singapore-style UK on the EU’s doorstep — boding slight desperation here to get a deal signed? — another reason for the impetus seems to come from an announcement out of Hong Kong.
The Hong Kong Stock Exchange (HKEX) wants to buy the London Stock Exchange (LSE) for £32bn, creating an 18-hour trading day and cementing confidence in London as a financial centre in spite of Brexit.
Now, this offer is a surprise given its scale and quantum. It may also be politically sensitive since Hong Kong is a Special Administrative Region (SAR) of China. But it follows a string of acquisitions from foreign and Chinese firms into the UK, taking advantage of the soft currency in the world’s fifth largest economy.
The LSE is one of the world’s oldest stock exchanges. It was formally established in 1773 by a group of stockbrokers who’d been trading in The City’s coffeehouses since the 1570s. It has survived bombing during the Second World War and an attack by the IRA in 1990.
‘Unsolicited, preliminary and highly conditional’ is how the LSE has described the offer of cash and shares. Stating that it would consider and make ‘a further announcement in due course.’
Short-run traders and economic doomsayers have possibly hyped the Brexit situation into a perfect storm of low currency and equity sell-offs. For investors with a longer-term horizon, this can mark opportunity to buy into assets like the LSE at sharp prices. Perhaps that opportunity is now being realised.
We may yet see this factor in New Zealand. Downward pressure on our currency makes market assets look cheaper to overseas investors.
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We’ll keep you posted.