The reaction of global markets on Friday night suggests Australian investors should be prepared for a few more rough days this week.
Panicked investors are likely to continue to flee risk assets such as equities in favour of safe haven assets like gold and US treasury bonds.
The shares that are likely to come under the most pressure are those that are directly exposed to Britain, Europe and global equity markets more broadly.
For Australian investors, this means a number of shares could be in for a very rough week, including:
BT Investment Management Ltd (ASX: BTT) – BT shares lost more than 14% last Friday but could be in for a rough week especially if the British Pound falls again. The fund manager has a significant proportion of its funds under management denominated in British Pounds and, as highlighted by the slide below, a downward movement in the currency will have a significant impact on its revenue and earnings.
QBE Insurance Group Ltd (ASX: QBE) – The turmoil caused by Brexit has at least two negative impacts on the insurer. Firstly, 29% of its gross premiums are written in Europe which means a downturn in the region could have a big impact on its overall operations. Secondly, the flight to safe haven assets has pushed bond yields even lower which makes it even more difficult for QBE to generate a return on its low-risk investments. Both of these issues have a significant impact on profits and investor sentiment.
Macquarie Group Ltd (ASX: MQG) – Although Macquarie is now in a much stronger position to weather financial storms, it nevertheless remains significantly leveraged to global financial markets. As a result, investors should expect the shares to significantly underperform when markets are under pressure and to significantly outperform when markets eventually rebound.
CYBG CDIs (ASX: CYB) – More people are predicting a recession in Britain following the historic vote and this would obviously have a massive impact on the British-based bank – assuming it actually occurs. The shares were hit extremely hard on Friday, falling more than 17.5%, but I wouldn't be surprised to see the shares come under even more pressure while uncertainty in the region remains.
Santos Ltd (ASX: STO) – The crude oil price has taken a massive hit since the Brexit decision with investors fleeing out of commodities on the expectation that global growth could be hampered by recent events. A lower oil price is obviously bad news for oil producers and because Santos is one of the most leveraged producers, its share price is also one of the most volatile. Investors should also keep a close eye on the US dollar as this also impacts the oil price.
BHP Billiton Limited (ASX: BHP) – Much of BHP's prosperity is reliant on strong global economic growth and higher commodity prices. Without strong growth, the demand (and price) for many of its commodities would fall and its share price would follow. Although the shares dropped by nearly 8% on Friday, investors should brace for further falls if markets become even more pessimistic about the outlook for global economic growth.
