Brexit’s Maybe Not So Brave World

FinTech and Brecit

Brexit will be on the lips and minds of all investors – and weighing on portfolios – for the near term and likely the long term.

The chaos sown by the vote that surprised just about everyone last week (except for the people who voted to leave the E.U.) and while the tumult across the stock markets Monday has proven to be rather tame in the wake of last Friday’s rout … the song remains the same.

The U.K. stock market was down 2.6 percent on the day, with banking stocks leading the way, and with Barclays again leading the slump in the financial sector, but the additional torque downward came from property shares and airlines – industries that depend on international demand (and that would be, of course, from the continent, too). One tell came from Easyjet, which sank 22 percent on Monday on the announcement that Brexit would hit revenues. Expect more of the same as companies scramble to see just how far and how wide the impact is going to be.  In the meantime, there are signals that Brexit itself is going to be an even bigger deal than at the individual company level. 

The biggest news came as S&P, the credit rating agency, stripped the U.K. of its triple A credit rating. The rating was taken down by two notches to a double A rating, and that is never good news. If the U.K. were a company, and this had happened, investors would flee. The question becomes whether the S&P cut will have a lasting impact, as the other ratings agencies, Fitch and Moody’s have already crossed that Rubicon. But the S&P action certainly won’t help the sterling – and that in turn will not help stocks, or bonds, or anything else, really, in the short term.

The murmurs that there still can be something done to keep the U.K. in the E.U. are hopeful shots in the dark – witness the fact that Scotland may be looking to have a vote to in essence leave the U.K. and remain in the E.U.  Such splintering would do much to kill the unity that is still mostly intact in the E.U. 

For FinTech the picture gets murkier. The key lure for a unified payments structure — a rocket ship being flown as it is being built at least in FinTech — is to streamline processes, and now that is all the harder with borders that are now likely to be closed, or at least harder to transverse. The fact that the U.K. can (and likely will) go its own way in the wake of no longer having to follow the E.U.’s payments lead means that eCommerce may suffer a bit. The chilling effect we’re seeing in markets globally hearkens to something else: That firms will continue to balk at going public, and that private equity may balk at funding startups, with this absence of an exit strategy, not to mention navigating a new regulator landscape for FinTech as the U.K. exits. 

Brave new world, indeed, and possibly not a pleasant one.