It only took a month for most short memoried investors to forget about or shrug off the years of ramifications for which markets are in store as a result of the British vote to leave in the June 23rd Brexit referendum. Yet the real world ramifications of the decision are again popping up everywhere. This started over the weekend at the annual G20 Summit and has continued with a raft of negative economic data emerging from the world’s fifth largest economy. Impacts of it can already be seen straining the global mergers and acquisitions markets as well.
G20 Leaders Worried About Continuing Brexit Fallout
The G20 annual summit has a lot on its plate. So you know when British Chancellor of the Exchequer Phillip Hammond says that the Brexit risks for the world economy came up repeatedly during the summit that it is a sobering and serious relevant issue for investors around the world. The G20 leaders statement claimed that Brexit increases the risks to the overall world economy. They said that it only “adds to the uncertainty” facing the global economy at the end of their two day summit in China. G20 economic leaders were obsessed with the topic at the meeting and argued for the United Kingdom to stay a “close partner of the EU.” What is more, the G20 leaders are worried that breakup discussions between the European Union and the United Kingdom will turn ugly and be fraught with conflict and bitterness, the BBC reported.
Amid the decisions made at the summit was the pledge for the G20 country finance ministers to work to build back up the world’s economy as well as to address the issue of trade protectionism that will likely arise as a result of the Brexit leave vote. Despite all of this confident and optimistic talk about being able to handle the fallout from Brexit, the underlying worry of the G20 member states is clear. Phillip Hammond put it best when he stated, “The reality is there will be a measure of uncertainty continuing right up to the conclusion of our negotiations with the EU.” This is one story to keep your eye on, though the majority of global investors seem to have already written it off at their extreme peril. Brexit is exactly the type of global black swan event that can shake your investment and retirement portfolios to their core.
Real World Economic and Investment Effects of Brexit Already Materializing
Hard on the heels of the G20 summit came the first raft of data out of the U.K. on how Brexit is affecting the real world economics of the second largest economy in Europe. Following signs of growth for the second quarter (pre-Brexit vote), the manufacturing conditions in Great Britain are anticipated to decline over the coming quarter as a result of the momentous vote. The CBI Industrial Trends Survey had shown a manufacturing sector recovery for the three months of the second quarter. Employment had grown as output expanded at the quickest rate in two years from improving domestic orders. The business respondents held a grim view for activity in the upcoming quarter. A paltry 5% of companies have greater optimism for the overall business environment than did three months ago. An overwhelming 52% stated that they are less optimistic. The remaining 47% were unchanged in their optimism. This reading represents the worst results since January of 2009 at the peak of the 2008 Global Financial Crisis and Great Recession. It is not a harbinger of great things to come for the world center of banking, insurance, finance, forex, and precious metals.
The uncertainty created by the grueling dragging effects of the long term Brexit affair are even impacting the level of global mergers and acquisision activity already. A new report released today by law firm Baker & McKenzie demonstrates that over the next five years, global M&A could decline by as much as an eye watering $1.6 trillion during the course of the coming five years. The only way to sidestep these ramifications which the report forecasts is if Britain rapidly leaves the European Union under a deal that provides it with ongoing free trade access to the single market. However well this issue proceeds, the global takeover activity will still be reduced. A disorderly and prolonged rancorous exit will only add to the economic and political uncertainty and trigger a greater decline in international combination activity.
Baker & McKenzie’s Global Chair of Mergers and Acquisitions Michael DeFranco suggested that in order to restore global M&A confidence, the new British government needs to take on the huge challenge of redefining its trading relationship vis a vis the EU as soon as it possibly can. Otherwise he predicts that the global investment territory becomes even more dangerous. With all of the continuing instability and financial chaos that will reverberate for potentially years to come because of the British Brexit, this is not the time to be parted from your gold positions. This is the time to increase your gold retirement holdings as much as you reasonably can.
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