The true cost of Brexit

The British vote to leave the European Union is one of the biggest news stories of 2016, surpassed perhaps only by the American Presidential Election. Writing in October 2016 no one really knows what ultimate outcomes mean for Great Britain and the European Union, but performance in the financial markets does provide some initial insights. The table to the right shows the Brent price of oil first in dollars and then in a variety of European currencies. Although the price has increased across the board, the 18.76% nominal change in British Pounds far exceeds the 2.5%-5% change in the other currencies.

Looking a bit more closely, the iShares MSCI United Kingdom ETF provides global investors with an easy exchange traded fund (ETF) priced in dollars that represents Britain’s biggest companies. As a developed nation, the United Kingdom has quite a few globally competitive firms whose performance is not necessarily correlated with home country performance. The table to the left shows that while the value of this index has remained relatively stable in Dollar or Euro, it has increased by approximately 14% in Pound terms since the Brexit vote.
200px-hsbc-svgHSBC Holdings, formerly known as the Hongkong and Shanghai bank, is a diversified globally competitive financial services firm despite its name headquartered in London. It also happens to be one of the most valuable companies in the world and the biggest constituent of the MSCI UK ETF. While wags used to joke that the sun would never set on the British Empire, it has never set on the world’s local bank. The table to the right illustrates this; while the nominal value in Pounds of the overall ETF increased in value by 14% since the Brexit vote, the value of HSBC has increased over 40%.