Singapore, Dec 21 2020
Welcome to Canopy’s Investor Behavior Newsletter (Week 52 of 2020). This week we will look at Brexit, or as the market would like to call it, the lack thereof.
The chart above is a running total of buy and sells for UK and European assets. As you can see from the chart, there is a consistent buy pattern on UK equities which has been going on since April (and has followed the overall ‘risk on’ sentiment that we are seeing worldwide).
These UK equity purchases gained momentum since mid October. This is very interesting because this was happening as Brexit negotiations became more and more deadlocked.
Also, unlike what we are seeing in Chinese equities (where investor buying has not resulted in prices rising), this purchase momentum in UK equities has resulted in stock prices rising. The FTSE 100 has done better than both the S&P500 and DAX over the last 2 months.
Proceeds of the buying activity have been flowing into somewhat ‘traditional’ sectors like consumer staples, healthcare and pharma i.e. sectors one would expect to do well in a generally booming economy.
This generally calm feeling on Brexit is also reflected in the media coverage. Coronavirus and its impact is getting top billing on the FT website as I write this (Monday morning 21st Dec). The locked Brexit talks get a mention but there seems to be no panic or concern.
Our data suggests that there is a 100% consensus between investor positioning, asset prices and media coverage on Brexit.
This does not automatically mean that Brexit is going to be a non-event. Previous analysis of similar high consensus situations has shown that the actual outcome is sometimes very different from the one expected.
We hope that markets remain calm and the general easy liquidity conditions continue to support asset prices. However we feel that, in case things were to go south from here on Brexit, there is a chance that the market could get caught on the wrong foot.
Please note that this newsletter is just a data analysis of actual investor behavior and does not constitute investment advice in any form.