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The Brexit in Conference Calls

Much talk of the pound as the great Brexit thermometer (British exit of the European Union), but the reality is that after the strong correction suffered in 2016 by the surprise of the referendum, the sterling is moving in a relatively narrow range.

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Much talk of the pound as the great Brexit thermometer (British exit of the European Union), but the reality is that after the strong correction suffered in 2016 by the surprise of the referendum, the sterling is moving in a relatively narrow range. In the last year, despite the continuous positive and negative news about the negotiation between London and Brussels, the exchange rate of the pound with the euro has moved in a range of 4%.

Two reasons explain this limited fork. The first is that a majority of investors still think that, apart from headlines and bitter political discussions, in the end there will be a more or less “sensible” break. The second is the enormous liquidity of the currency market (moves 5 trillion dollars per day), which allows the appearance of buyers as soon as there are small declines in the British currency.

“In fact, the most intense volatility for the Brexit is being felt in the stock market, in those listed with strong exposure to the United Kingdom.”

To detect the most risky securities, the Swiss bank UBS has reviewed the transcripts of the meetings with analysts of 550 European companies during the last years, with the aim of identifying those who speak most of the Brexit with a negative tone.

The first conclusion is that Brexit is back in fashion at conference calls. In the last quarter of 2018 there was a rebound of mentions to this process, although it did not reach the levels lived around the June 2016 plebiscite.

The number of appointments to Brexit also predominates with a negative connotation, when during most of 2017 and 2018 there were more positive quotes about that process.

By countries, the companies with more pessimistic references on the Brexit are the Irish, ahead of the British (many of those listed on the London Stock Exchange have their business outside the United Kingdom). The third country with the most concerned companies is Germany, and in fourth place is Spain.

“Airlines, banks, distribution companies, real estate and electricity appear as the most affected sectors.”

And in the top 20 of the companies that talk the most about Brexit, not only do British groups such as Barclays, ITV, Persimmon, LSE or Kingfisher appear. There are also the Irish Ryanair and Kerry, the Swedish Handlesbanken and Skanska and the Spanish IAG and Aena.

A soft Brexit seems key for investors in the airline industry. In the case of IAG, it is in doubt that the group can meet after the Brexit on the condition of having a majority shareholding in the hands of investors from the EU, something necessary to maintain the rights of flight in the continent. In Aena, in addition to its direct exposure to the United Kingdom as the majority owner of Luton airport, the market is concerned about the large volume of British travelers arriving each year to their Spanish facilities. A hard Brexit could affect this flow, if those tourists are forced to obtain a visa.

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