Many thought Brexit was supposed to be terrible for the markets, yet the FTSE is now trading at new highs. Many also thought that Brexit was going to be a disaster for the British Pound, yet it seems to have stabilized. Brexit was supposed to bring ruin to all who pronounced its evil name, yet no such thing as happened. But why? And why did the financial sector’s plunge grind to complete a halt when Theresa May won the premiership?
I’ve stated previously that in the short-run panic would set in and volatility in the markets worldwide would be elevated, but in the long run Brexit (may its name die in peace) would be a net plus for the British economy. What I never expected was for the short term to be so short, that was until a bulb lit up in my head.
When the most fervent advocate for the leave campaign, Boris Johnson, was stabbed in the back by other Conservative members of parliament, my eyes were opened. Then when my favorite candidate, Andrea Leadsom, was ambushed and marginalized, I sat bolt upright in my chair. But the ultimate clue was the referendum map of England and Wales.
Every county in England and Wales voted to leave the EU, and in some cases by very wide margins, except London, which voted to remain by a very large margin. So who lives in Greater London? The political elite, the financially privileged, and those that believe the world revolves around them. In plain words, a contingent of citizens that is completely out of touch with the rest of the population.
So Theresa May has become prime minister. However, she was not in favor of leaving the EU. Are you beginning to catch on? There was no way for members of parliament to buck their constituents and vote to remain—that would have caused a revolt and they would have likely lost their seats. So the next best thing was to elect a leader who was not in favor of leaving, or at least kept quiet during the run up to the referendum.
Once it was clear that May would be the next prime minister, the financial elites jumped up and down with joy and thus the FTSE began its dramatic rise. It was clear to these people that somehow or the other Brexit would happen only in name, not in practice. “Stupid population won’t realize they are being duped,” I’m sure was the thinking. So what effect will this have on the markets and politics in the long run?
In my opinion, Theresa May will be terrible for Britain politically and the big winner here will be the United Kingdom Independence Party. Economically, once the population at large begins to understand they have been taken for a ride, there could be a revolt which may very well plunge the country into a recession. The will of the people must always be revered.
In the meantime, the three banks I mentioned in an earlier article, Lloyd’s, HSBC, and Barclays, are having resurgence in the price of their stocks. So they are all a buy, until the great explosion. At least Cameron has ethics.
Peter Kohli, CEO of emerging market specialist DMS Funds.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Frontera