As Brexit Uncertainty Mounts, Watch These ETFs
Fueling market uncertainty, the United Kingdom will vote for the so-called Brexit referendum on whether or not it will remain in the European Union, potentially precipitating wide-reaching volatility on global markets and exchange traded funds.
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Debate on the Brexit vote has heated up as we draw closer to the June 23 referendum date. While many have warned of the negative effects of a Brexit vote going through, rising number of Euro-sceptics are turning out in Great Britain, with a number of polls showing counts that are too close to call or even in favor of a break from the European Union - London newspaper The Independent
The Brexit is widely seen as a negative market catalyst. For instance, in a note, Richard Turnill, BlackRock Global Chief Investment Strategist, argued that the vote would likely send shocks through global markets, pressuring riskier assets like stocks and corporate credit, in the ensuing risk-off environment as concerns over political instability.
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AdvertisementSpecifically, Turnill warned that peripheral European assets and global financials and materials equity sectors would be especially exposed. On the other hand safe-haven investments would benefit.
Eurozone officials have also issued a warnings about the economic consequences of a Brexit. The immediate threat comes from a weaker British pound sterling and a hit to economic activity as an exit would remove the country's favorable trade agreements - the EU enjoys free trade between member states, which makes exporting cheaper and easier for British companies. According to a May Markit/CIPS PMI survey of companies, over one-third of companies reveal that the uncertainty over the Brexit vote has contributed to a detrimental effect on their businesses.
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Flight to Safety: Investors Snap Up Bonds as Summer Risks Loom Large Pound Falls To 8-week Low On New 'Brexit' Poll Wilbur Ross: If U.K. Leaves Europe It Will be a 'Madhouse' Additionally, currency investors have been actively trading on sentiment ahead of the Brexit vote through the CurrencyShares British Pound Sterling Trust (NYSE:FXBshorting the currency through FXB A passing vote would weigh on broad Eurozone markets and related ETFs like the iShares MSCI EMU ETF (NYSE:EZUSPDR EURO STOXX 50 (NYSE:FEZ More aggressive currency traders can also target further weakness in the Eurozone through inverse ETF options if the vote passes. For instance, the ProShares Short Euro (NYSE:EUFXProShares UltraShort Euro (NYSE:EUO Market Vectors Double Short Euro ETN (NYSE:DRR U.K. markets are already feeling the pressure on the increased uncertainty. The iShares MSCI United Kingdom ETF’s (NYSE:EWUDeutsche X-Trackers MSCI United Kingdom Hedged Equity ETF (NYSE:DBUKWisdomTree United Kingdom Hedged Equity Fund (NASDAQ:DXPS Investors can also hedge against the growing uncertainty with safe-haven bets. For instance, gold and related SPDR Gold Shares (NYSE:GLD U.S. Treasuries may also enjoy greater interest as a safe-haven play away from European assets. ETF investors may look to options like the iShares 20+ Year Treasury Bond ETF (NYSE:TLTiShares 7-10 Year Treasury Bond ETF (NYSE:IEF This article was provided by our partners at etftrends.com