The author, Simon Constable, is a former TV web anchor for The Wall Street Journal who writes frequently on global economic issues.
It is, of course, a cause for concern, just seeing the size of the headlines and the red figures flashing on business TV channels. Britain’s historic vote to leave the European Union (EU) crushed markets across the world, and left the pound getting, well, a pounding.
But is it the beginning of end of the world economy, as some observers can make it seem? Actually, no. In fact, you could argue it could be the opposite. The sell-off we saw right after the shocking vote came “regardless of whether the underlying firms have any exposure to the UK or Europe at all,” says George Schultze, hedge fund manager at Purchase, N.Y.-based Schultze Asset Management. “This is silly.”
Schulze isn’t freaking out and neither should business chiefs. If anything, the smart leaders are embracing the changes that will be brought about by Britain exiting Europe. Why? Because big change like this has the potential to create huge market openings, especially for those executives who keep their eyes open and who are willing to quickly seize opportunities. That’s the key: Be ready to act.
Sure, stock market investors got freaked because they hate uncertainty. The bigger the uncertainty about how things will turn out, the less stock owners are willing to pay. In this case, there will be “profound and protracted uncertainty” about Britain’s place in the world, according to Morgan Stanley. The country might be geographically small, but it is the world's fifth largest economy. That’s why it matters.
As Britain’s place in the world changes, for better or worse, there will be openings in the marketplace. Such opportunities might not last long, and will require quick decisions, followed by fast implementation. In other words, nimble and fast-acting corporate leaders will rule the day.
What will happen? It's hard to be precise, but we can make some educated guesses,
Temporary discount on British assets.
In the first place, the brutal hit to the British pound effectively puts a discount on assets in Britain compared to the price in dollars just before the vote. Expect pounds to trade between $1.30-$1.40 for a while, says independent market data provider TraderMade. That’s an opportunity for any foreign company that’s been seeking a presence in Britain. It won’t last forever, but probably won’t change until the policies and plans of the country’s new leadership become clearer.
Expect a battle over financial services.
London has long dominated Europe’s financial services business. But it's something that German and French leaders may want to chip away at by luring banks and brokerages to Frankfurt and Paris, as the UK exits the EU. Expect government tax incentives or direct subsidies for companies to move at least part of their business to the continental money hubs. Again, such enticements might not last forever, so that might be best looked at as icing on the cake for companies that had pre-existing designs on doing business in those locations.
The Commonwealth beckons.
Prior to Britain joining the EU in the 1970s, the country had longstanding relationships with many of its former colonies, aka the Commonwealth. The UK may try to rekindle free trade with those countries, especially where there are obvious opportunities. India, the largest democracy in the world, would seem to be a prime candidate. It shares the same language of business (English), and its legal system is based on England’s. Plus, its economy is growing rapidly by current standards. What businesses? Facilitating imports and exports between the two nations, seems a likely fit.