Brexit – how will it affect SA?

Britain voted to leave the European Union. How will this affect South Africa? We asked our ZAR Forex Report writer and local resident, Global Forex manager Herman Howell to break it down in layman’s terms.

It is very hard to say how Brexit will impact SA and indeed the world as this is an incredibly extraordinary event.

In the aftermath that followed last night’s decision that the UK will leave the European Union, the Pound Sterling lost around 10% against the USD and global markets tumbled. The FTSE opened 7% down and companies such as Barclays Bank were down well over 30%.

This is probably the biggest economic event in the last 50 years and will have a global reach – in SA the Rand fell almost by R1 overnight against the USD as it lost almost 8%, before recovering slightly in the morning. The JSE stock market is taking tremendous strain with mostly red numbers all over – gold has reached its highest level in 27 years.

It will be interesting to see how things play out in SA, as although we are far removed, the UK and EU are big trading partners and many of our companies are dual listed, meaning a company like SAB trade both on the JSE and FTSE.

This event creates a massive amount of uncertainty and investors will opt for USD or gold related products, meaning that emerging markets and currencies such as the Rand will be under severe pressure. Make no mistake that this will have worldwide ramifications and could even lead to a global recession-  last night the GBP jumped around more than in any other day in modern history, and like 2007, this will spill over to other economies.

Of course in the long run things will probably stabilise and the optimist will argue that new opportunities will arise – new trading partners and agreements, perhaps even picking up shares at rock bottom prices? But as the saying goes, don’t catch a falling knife.

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