Britain’s Brexit election is under way, making this a natural time to look at a stock index designed specifically to allow traders to take positions on the hugely significant policy of UK withdrawal from the European Union.
The Chicago Board Options Exchange’s Brexit Low 50 index comprises the stocks of 50 companies whose dependence on domestic British revenues is, as the name suggests, low. These are the companies that not only have less to fear from a “hard Brexit” than home-based firms, but which may actually benefit from it.
This is because any decline in the value of the pound increases the sterling worth of profits made overseas when brought back to Britain.
Nothing can be ruled out
So, the Low 50 hit a recent peak of 14,983.32 on 30 June as the almost-certain future Prime Minister Boris Johnson pledged a “do or die” drive to get the UK out of the EU by 31 October. Had Mr Johnson been able to keep this commitment, this could well have involved a hard Brexit, making the shares of the outward-facing companies in the Low 50 more attractive.
But after defeats in Parliament and in the courts, the Prime Minister’s chances of meeting the 31 October deadline receded. The index declined to 13,463.27 on 21 October.
Trade Cboe UK Brexit High 50 - BUKHI50P CFD
Now that Boris Johnson has persuaded Parliament to grant him a general election, the Low 50 has rallied somewhat and on 5 November 2019 traded at 14,117.27. The thinking seems to be that the Conservative Party is likely to gain a Parliamentary majority and, in Mr Johnson’s words, get Brexit done.
However, a decline in the Conservatives’ opinion-poll position could see the index turn down once more. The main opposition party, Labour, is committed to renegotiate the current withdrawal agreement and then put the result to a second referendum.
There is some confusion as to whether Labour would recommend the voters to back this new deal or whether it would campaign against its own agreement.
After the surprisingly good showing of Labour in the 2017 general election, nothing can be ruled out.
A continuing role?
Pharmaceuticals and medical supplies are represented by AstraZeneca, GlaxoSmithKline, Hikma Pharmaceuticals and Smith & Nephew, while flying the flag for consumer products are Coca-Cola, Diageo and Imperial Brands. From the world of travel is cruise company Carnival and InterContinental Hotels Group and from financial services are insurer Prudential and Standard Chartered bank.
An obvious question is what happens if Brexit goes ahead. Will the index still have a role? Given that negotiations on the final shape of UK-EU trade relations will continue after the election, the answer is probably yes.
Furthermore, traders may continue to value an index specifically constructed to include companies with a low reliance on the domestic British market.