Given the recent developments in UK and the Brexit situation worsening, we would like to remind our readers the below summary of the most exposed sectors and stocks to a hard Brexit situation, presented to our readers in late September.

The GBP is falling sharply today, helping the FTSE stay pretty much unchanged on the day. We find it more interesting to view UK assets in USD terms at the moment.

FTSE index in USD terms.

GBPUSD 1-month ATM volatility spiking further today as we trade at levels last seen in mid-2015.

Below are some of the biggest losers in FTSE today, RBS, PSN, BDEV, EZJ, all down 5-7%.

Source; charts by Bloomberg

The most exposed sectors and stocks worth watching carefully here:

Travel and Leisure: Post Brexit, UK based airline companies would have to re-assess their European routes to abide with EU laws. In addition, they would have to re-calculate fares, routes and costs of visas for their customers. Finally, a weaker GBP would make it more expensive for the British to enjoy vacations abroad. The main companies to focus on in this sector are;

  • EasyJet (EZJ LN)
  • IAG (IAG LN)
  • Thomas Cook (TCG LN)

Banks / Financial Institutions: If there is a hard Brexit – UK based banks will lose the business that is tied to EU. UK based banks will no longer be able to do EU related business unless they move their HQ. Subsequently, UK based banks will most likely lose a great part of their business with regards to the highly profitable investment banking space. Companies to keep on the radar are;

  • Lloyds Banking (LLOY LN)
  • Barclays (BARC LN)
  • Royal Bank of Scotland (RBS LN)

Property Investment / Real-Estate / Construction Companies: Housing markets are generally shaped by wages and interest rates. A hard Brexit would put pressure on wages. Increased trade barriers would make goods and services more expensive. Bank of England noted if a hard Brexit comes to fruition, the central bank would have to raise rates. This would have a negative impact on the large UK housing market.

Furthermore, if Brexit happens, EU companies that have a big physical presence in the UK would leave and take their employees with them. As a result, there would be an increased supply of both office and residential properties in all of UK. Companies with big exposure to the general UK real-estate market are;

  • Persimmon (PSN LN)
  • Taylor Wimpey (TW/ LN)
  • British Land (BLND LN)
  • Land Securities (LAND LN)
  • Travis Perkins (TPK LN)

Retail: An increase in consumer prices (see above) will lead to UK households having less disposable income to spend. The continued weakening of GBP would drive up costs for retailers as they import a lot of the goods they sell. All of this would negatively affect consumer confidence which will hit the retail sector. Companies in retail to follow are;

  • Next PLC (NXT LN)
  • Dixons Carphone (DC/ LN)
  • Marks & Spencer (MKS LN)