- - - - Example 1 - - - -
This weekend, the Boris Johnson (pro-Leave) wrote in his column "The reality is that the stock market has not plunged, as some said it would - far from it. The FTSE is higher than when the vote took place
Boris Johnson has given us the perfect example of a misleading statement. If Financial Spreads told these kinds of things to our clients the regulator would probably haul us in, or fine us, for being patently misleading.
- FTSE 100: Up 1.5% to 6480
- FTSE 250: Down 9% to 15764
- GBP/USD: Down 12.5% to $1.318. Sterling has lost 18.5 cents vs US dollar
- EUR/GBP: Down 10% to €1.1808. Sterling has lost 12.7 cents vs the euro
(Above, spot market prices as of 9.30am 5 July compared to closing prices on the day of the EU referendum, 23 June 2016.)
An estimated 75% of revenues of FTSE 100 companies
come from overseas. In simple terms, the FTSE 100 valuation has benefitted from the weak pound.
The FTSE 250 is far more representative of the UK and therefore a better indicator of what investors think of UK PLC.
The 9% drop in the FTSE 250, and the pound's double digit falls against the dollar and euro, show a distinct lack of confidence in the UK.
- - - - Example 2 - - - -
George Osborne (pro-Remain) has also said that he is now planning cut corporation tax from the current 20% to "less than 15".
Ignoring the political and fiscal difficulties of dropping corporation tax below 15%, Gorgeous George must know that he's unlikely to be the next UK chancellor.
Of course, he may just be trying to strengthen the UK's hand ahead of the EU negations. Either way, it's still misleading.
- - - - What Can an Investor Do? - - - -
The excess political noise can make short-term trading difficult. It's tricky to:
- Keep on top of all the political statements and judge which are still market moving events (irrespective of whether the statements are true or false)
- Remove your own personal bias (it's easier to believe statements that suit your circumstances and beliefs)
For now, it might be safer to take a medium term view and base trading decisions on the facts e.g. GDP, PMI (Purchase Managers Index), inflation, corporate data etc.
This will reduce the number of trading opportunities but it should also reduce the impact of the political noise.
The information and comments provided herein under no circumstances are to be considered an offer or solicitation to invest and nothing herein should be construed as investment advice. The information provided is believed to be accurate at the date the information is produced.
By Adam Jepsen, 5 July 2016