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Present tense over "Brexit"
Essence of the Week
Jun 20, 2016 | Source: AxisDirect
A rebound in oil prices, status quo by a string of central banks (US Federal Reserve, Bank of Japan and Bank of England) and easing of worries over upcoming vote on “Brexit” (Britain’s exit from EU) helped markets take a breather. Markets turned extremely moody after some recent polls showed a lead for the exit camp. However, there has been a clear disconnect, as surveys conducted over telephone showed a lead for “remain” whereas those conducted online gave an edge to “exit” camp. This may be due to pro-EU Labor voters being disproportionately represented in phone polls whereas a large “pro-Brexit” being accounted for by online polls.
Clearly, Britain's June 23 referendum on EU membership will remain in the spotlight over the coming week. Not surprisingly, while the three key central banks left their monetary policies unchanged, they cited “Brexit” as the largest risk for financial markets.
It is very difficult to forecast the outcome of such referendums especially when societies all over the world are at war with their governments. Brexit, if it does happen, could cause financial dislocations across asset classes in general but we believe Tata Steel and Tata Motors will be at the most risk. We recommend buying Infosys as a US dollar cash hedge for such eventuality.
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