What’s the capital of capital?

When the media asked Morgan Stanley CEO James Gorman about his firm’s preparations for Brexit, he replied: “That’s not in my top 200 issues.”

Which sounds a lot like Jay Z’s famous song “I got 99 problems, but a Brexit ain’t one”.

And the City of London couldn’t agree more with either of them. It’s booming.

Reuters’ article “London retains global finance throne amid Brexit chaos” provides some of the extraordinary details.

Apparently, London’s dominance over financial markets has grown “only bigger by some measures” since the referendum. When it comes to foreign exchange markets in particular. Overall, “London is the largest net exporter of financial services in the world”.

Even London real estate is booming. “In the year to June, London has attracted more cross border commercial real estate investment than any other city.”

Goldman Sachs has opened a million square foot office here. My Great Uncle Bob and I were kicked out of their old offices once…

What about jobs? Well, employment in the city has grown by 31,000. Which just happens to be almost exactly the expected amount of job losses from Brexit according to think tank Bruegel…

It’s also how many investment bank jobs are expected to be cut this year globally…

And that’s before technology comes for the frontline and back office banking staff. More on that in a moment.

Reuters summarises:

The cataclysmic warnings during the 2016 referendum that London would lose its financial throne if it voted to leave the European Union (EU) have, so far, been proven wrong.

Instead, London is booming. While banks elsewhere are in trouble. Ironic, isn’t it?

The inevitable net effect of all this recently hit the news too. Sky News reported London is “The cocaine capital of Europe”. The official stats are impressive: “Every day Londoners consume more cocaine than people in Berlin, Amsterdam and Barcelona combined.”

But why?

No, not that! Why is London booming?

Boaz Shoshan answered that question in the latest issue of Zero Hour Alert. You can access it here, for a heavily discounted price.

I bet you can’t guess the reason Boaz identifies as being crucial to London’s success. Hint: I live there.

But the peculiar reason place Boaz points to is just part of the answer. Consider economic conditions in the rest of the country. It’s not just London that’s doing well. Things are going extraordinarily well for Britain generally since the referendum.

Inflation has stayed within the Bank of England’s target 97% of months. An impressive record compared to its past, and to central banks around the world at the moment.

Unemployment is at the lowest level since 1974 and employment is at the highest level since records began.

Wage growth is at the highest level in 11 years.

The UK government has sold £100 billion in UK government debt to foreigners since the referendum.

Incoming foreign direct investment hit an all-time record in the last quarter of 2016.

Even the UK stockmarket index hit a record high in the wake of the referendum.

Things are going so well that even the Bank of England governor is mystified. He reckons people are buying Britain out of “the kindness of strangers”. And yet, he’s the one managing the highest interest rate in western Europe thanks to the decent inflation levels.

The one time a central banker could be taking credit for decent performance, he fails to because it’d be too embarrassing in the face of predicting Brexit doom.

Over at the Daily Blitz, we’ve launched a campaign to keep this run of impressive performance going. A demand for three more years of Brexit chaos.

Which no doubt sounds facetious. But it isn’t.

Perhaps Brexit is the key to prosperity. Not necessarily Brexit itself. But the Brexit referendum’s effects so far. You can find out exactly why I’m saying this by watching the Daily Blitz.

But what does all this mean for you, the investor?

Well, first of all, a warning. If you believe in Brexit and invest in UK stocks, you’re making a dreadful mistake. That’s not a plausible combination.

If you don’t believe in Brexit, you should own FTSE 100 stocks. But if you do, then it doesn’t make any sense to invest in them.

Which must sound odd. Surely UK stocks will boom if Britain does well…

Nope.

If Brexit happens and the UK economy continues to go from strength to strength, the FTSE 100 will not see the benefits. At least, not nearly as much as you’d expect.

I explain why here.

If you want to profit from Brexit via the stockmarket, you need to radically change how you invest. I’m talking about selling certain holdings and buying into a particular type of company instead.

What’s the distinction between the two? That’s easy. The pound.

Exchange rates heavily impact companies with foreign earnings. Companies with domestic business don’t really mind. They care about the local economy.

The FTSE 100 is full of the former – huge multinationals with international revenue streams. To find companies exposed to the UK economy, you have to look elsewhere.

The proof is in the pudding. And in this case, the pudding was baked on Friday. And it tasted mighty sweet for anyone that made the change I suggest.

On to the second point I want to make for you in Exponential Investor today. It’s a little closer to home for tech investors. According to Reuters, London fintech investments have overtaken New York.

Our capital is the capital of capital, in one of the most innovative sectors in the world right now. Fintech is upending some of the biggest incumbent companies in the world. And making lives far more convenient… most of the time…

Are you positioned to profit? Zero Hour Alert’s monthly issue shows you the one-stop shop to gain exposure to London’s fintech scene.

In short, we’ve put together what we call the Brexit Boom Portfolio. A list of stocks to sell and to buy if Britain leaves the EU and becomes successful.

If…

Until next time,

Nick Hubble
Editor, Southbank Investment Research

Category: Technology

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