Copy
To Brexit or not to Brexit?
View this email in your browser

march 2016

the globe

in this issue

     market indicators
        editorial - theolene gelderbloem, general manager
analysis - louis venter, risk & investment advisor
The United Kingdom's relationship with the European Union has recently escalated from general uneasiness to a all-out heated debate. European integration and British disintegration are increasingly causally related.

market indicators
 
  • The intensifying spat between Finance Minister Pravin Gordhan and the Hawks sent the Rand weaker against major currencies on March 16th 2016, as credit rating agency Moody’s arrives in the country to decide whether SA’s sovereign rating will be downgraded to junk
  • The S&P500 closed at its highest level of the year this week after US Federal Reserve left interest rates untouched and signalled fewer rate hikes in the coming months
  • The JSE closed firmer on March 16th 2016 as risk on sentiment ahead of the US rate decision boosted broad-based gains. The All Share Index had risen by 0.83% and the Blue-Chip Top 40 Index had gained 0.93%
  • On the March 17th 2016 oil futures extended strong gains after the world’s biggest suppliers firmed up plans to meet to discuss an output freeze
  • Gold ticked lower on Thursday March 17th 2016 as the market took a breather after rallying 2.5% in the previous session, following the Federal Reserve’s decision to cut the number of planned interest rate hikes, adding to pressure on the Dollar.
  • Consumer prices in China unexpectedly rose 2.3% year-on-year in February 2016, following a 1.8% rise in January and above-market consensus of a 1.9% increase. It is the highest inflation rate since July 2014
  • The European Central Bank lowered its benchmark refinancing rate by 0.05% to a fresh record low of 0% and increased the asset purchase program by €20 billion to €80 billion a month on March 10th 2016. The deposit facility rate was cut by 0.10% to -0.4% and the lending facility was lowered by 0.05% to 0.25%. A new series of long-term loans to banks was announced. Policymakers said interest rates are expected to remain at present or  at lower levels for an extended period of time and will cut growth and inflation forecasts
editorial
to brexit or not to bexit?
words by theolene gelderbloem, general manager

'All the world's a stage, And all the men and women merely players; They have their exits and their entrances, And one man in his time plays many parts...' so said Shakespeare's melancholy Jacques in As You Like It. And in the case of a Brexit, I can't think of a better quote to sum it up.   

The United Kingdom's relationship with the European Union has recently escalated from general uneasiness to an all-out heated debate (read: war of words). The world is watching intently as the UK gears up to to decide its future with and within the EU. What would the move mean for the UE and the UK? And what would it mean for the rest of the world, particularly for us in South Africa?

Leaving the EU would result in an immediate cost saving for the UK, as the country would no longer be contributing to the EU budget. Fears that car manufacturers could scale back or even end production in the UK could mean that vehicles would no longer be exported. Under European law, Britain cannot prevent anyone from another member state coming to live in the country. There has also been speculation that around 3 million jobs will be lost.

For Outers, leaving the EU will allow Britain to re-establish itself as an independent nation with connections to the rest of the world. To Inners, Brexit would result in the country giving up its influence in Europe, turning back the clock and retreating from the global power networks of the 21st century.

Should the Outers have their way, the impact on world economies would be significant, particularly on those of developing nations. The Sterling would most certain take a serious knock (it's already taken a bit of a beating). How will this affect the Rand? In the short term, it's good news as trade with the UK will be a contain a little less sting. In the medium term, uncertainty is likely to make global markets take a bit of a tumble. For now, we may only speculate and wait for June 23rd to watch as David Cameron shakes it all about. 

 
'brexit will open a period of political turmoil and constitutional crisis across the uk & beyond ; where it will end, for now, no one knows.'  
― dr. kirsty hughes

 
http://www.theguardian.com/
 

analysis                                                                                                                         
a background guide to brexit
words by louis venter, risk & investment advisor

David Cameron, Prime Minister of the United Kingdom, has set aside June 23rd as a potential referendum that could potentially decide the fate of the UK’s membership of the European Union. Although Cameron is a firm believer in remaining in the EU, some high profile MP’s, including Justice Secretary Michael Cove and London’s mayor Boris Johnson have pledged their support for the 'out' campaign.
 
The United Kingdom, together with Ireland, joined the EU in 1973. Today the UK is a relatively major player in this union, showing some of the following strong characteristics:
  • It accounts for approximately 13% of the EU population
  • The UK remains a favourite investment destination among the 28 EU states
  • The UK is one of the largest overall contributors to the EU budget - during 2013 alone this number was in excess of €11.3b
 
If one considers that 45% of all UK exports do go into the EU (according to the latest IMF numbers) then why is Britain potentially wanting to leave?
 
the 'out' campaign
The basis of this campaign is foremost that Britain will negotiate a better relationship with the EU and could potentially secure better trade deals with the likes of China, India and even the Americas without having to battle EU intervention.
 
If one considers that Britain is currently paying £350m per week to Brussels as part of its membership fee, then it is understandable that this campaign believes that this cost can be better applied in enhancing research and development in the UK.
 
Employment laws within the EU are currently centralised in Brussels and this has hurt the UK industry to a certain extent. Even health and safety laws could potentially have better structure. Immigration laws in the EU potentially block non-EU immigrants, and again the UK could potentially reap benefits from certain qualified and skilled labour that is currently being disallowed.
 
Britain’s current influence within the EU is believed to be limited, and as an outsider there may the potential of the UK having a stronger voice of influence.
 
the 'in' campaign
If Britain remains within the EU then it will avoid huge export taxes and red tape, - which is the core of this campaign considering that 45% of UK exports go to the EU. Britain’s influence in the EU does allow the opportunity to negotiate better trade norms. EU regulations collapses 28 national standards into one, thus reducing red tape which benefits business.

Perhaps the strongest argument for the UK to remain in the EU is the fact that an exit may impact the UK’s GDP by as much as 1.6% annually and it could potentially see the Pound weaken by as much as 20%.
 
the potential impact on the EU
A Brexit has the potential to create an imbalance of power in light of the strong influence that the Franco-German alliance has on European affairs. The loss of Britain will strengthen Germany’s position and could effectively allow Germany to create an EU model to its personal likeness. Britain’s departure would mean not only a loss of a substantial industrial base and monetary influence of the so-called Anglo-Saxon relationship, but could severely damage the esteem of the EU globally.

Another potential risk is that Europe’s safety and defence could diminish because of Britain’s technological involvement in NATO and obviously its enormous manpower.
 
the probable end result
It does appear that David Cameron is playing his own version of the Hokey Pokey with the EU and is currently merely 'shaking it all about'. An exit by Britain can disrupt the inner workings of the EU, but it is also clear that the EU and UK will still be compelled to maintain a functional relationship as both parties stand to lose much.
 
 
References:
The Economist Feb 24th 2016 & LinkedIn/David Marinelli


company news
Global & Local has welcomed two new staff members - Lucinda Petersen & Trevin Reddy - to the administrative team and Mark Geldenhuys has joined the team of IFAs.

Our new website is also live: go and explore it and be sure to give us your feedback.
contact us
Global & Local
investment & retirement specialists

175 barry hertzog avenue, emmarentia, johannesburg 2195

t | +27 11 486 2500   f | +27 11 486 2915

admin@globallocal.co.za 
www.globallocal.co.za 
 

not based in johannesburg?
visit one of our other branches

cape town
67 somerset road, greenpoint

t | +27 21 418 0553   f | +27 21 418 0891

 
view our website

gauteng south
126 rose avenue, lenasia

t | +27 11 854 1351  f | 086 671 9294

 
follow us on facebook



Directors: MPA Haldane (BCom) (HONS); MA Forlin (Ndip) CFP®
Global & Local® Investment Advisors (Pty) Ltd. Vat: 4550261574 Registration 2006/002605/07. FSP 43286