Property Talk

The one thing that was drilled into us as Finance Honours graduates of UCT by our Professor at the time is to ensure we are always joining the dots of world events, anticipating and actively investigating what the impact is or could be across business and economies when certain events occur. The term Brexit, or a British exit from the European Union, would by now have made it our vocabulary as it has dominated the international media space following the outcome of the referendum held on 23rd June in which Britons voted by a narrow majority of 51,9% to leave the EU. Although the president of the European Council, Donald Tusk, has been quoted as saying that the UK leaving the EU could be the beginning of the destruction of not only the EU but also of Western political civilization in its entirety, this over-dramatization should not be ignored but rather analyzed in terms of what more pragmatically minded and thoughtful people had to say. The first thing to know is that the EU is South Africa's largest trading partner with R366bn of imports to SA last year and R280bn of exports to the EU. The existing trade deals with the European bloc would have to be renegotiated in the event of a British exit and this may end up on less favourable terms to us. The markets reacted immediately to the news of the referendum. The Pound was hammered against both the US Dollar (to its lowest level since 1985) as well as against the Euro. Traders had actually priced in a remain in the EU outcome, which most financial and business people had expected. In a world of great political uncertainty it shows us how easily the unexpected can happen. The share prices of several South African companies with London based listings reacted such as Glencore losing 12,2%, Investec losing 10,3% and Old Mutual losing 10.04%. Uncertainty favours the gold shares and AngloGold Ashanti climbed 18,1%, Harmony +17,8% and Gold Fields +16,9%. When this happens we sense fear and panic and it is at times like these to seek out intelligent commentary. One of the best is a report published by the Economist magazines' Intelligence Unit mapping the impact, both politically and economically of a British exit from the EU. This report looked at the political and economic costs leading to 2020 and specifically focused on the key industries that would be effected - these being Finance, Retail, Automotive, Healthcare, Energy and Telecommunications. Their predicted fall in sterling was spot on.

The political uncertainty and costs relate to upheavel within the British Conservative Party ranks and the reshuffling of leadership - we already saw the resignation of leader David Cameron. The new UK-EU trade agreement would have to be negotiated and this would be expected to take until 2019 to come into force. The Economist report presented scenarios of a high disruption case and a low disruption case, with their assessment leaning towards the high disruption scenario. The economic cost has been presented as first translating into a period of high uncertainty and volatility followed by a second wave of negative forces as a depreciated pound shows up in higher import costs and higher inflation in the UK and the expected increase in unemployment as European companies move operations away from the UK. London has long dominated the financial services industry of Europe and this position would be placed at risk. The Economist predicts London ending up merely as an equal size player to many of the competing European players. Car manufacturers Nissan and Toyota are examples of companies having large investments in the UK churning out vehicles for the EU market. These investments could be at risk.

What happens in the UK and Europe has a profound impact on our local economy and the prospect of lower growth in the UK or even a recession is therefore of particular interest to us.

For further information and an interactive analysis of this article follow my blog: andreaswassenaar.blogspot.com.

Andreas Wassenaar

Principal - Seeff Dolphin Coast

Cell: 082 837 9094

andreasw@seeff.com