With the UK political situation causing even more confusion, which ASX shares are affected by the latest Brexit vote?
It seems hard to believe, but it’s been around two and a half years since the UK public voted on 23 June 2016 to exit the European Union. With only a couple of months left before the UK leaves the EU, we’re getting close to crunch time.
What was the Brexit vote that just happened?
This week the UK Parliament voted to reject Prime Minister Theresa May’s Brexit deal by 432 to 202, the largest defeat of a sitting government in history. Ouch!
So, what does this mean?
Firstly, the Labour Party in the UK has tabled a vote of no confidence which could trigger a general election.
Second, the deal that PM May negotiated took two years to create, so it’s unlikely a new deal can be formed in just two months.
The three options now seem to be: leave with no deal, extend negotiations, or cancel Brexit.
How does this affect ASX shares?
Most ASX shares won’t be directly affected by this, although it could cause the global share market some confusion.
The Brexit shenanigans have a much larger effect on the ASX businesses that have UK operations. One point that affects every single one is the exchange rate. The UK pound rose in value in response to the Brexit news, which translates to more Australian dollars for the same amount of UK earnings.
There are several ASX shares with substantial UK operations.
CYBG Plc (ASX: CYB) is a challenger bank in the UK which operates Clydesdale Bank and Yorkshire Bank. It will soon merge with Virgin Money. Its share price dropped more than 1% in response to the political uncertainty. Banks prefer a stable system to operate in.
Gentrack Group Ltd (ASX: GTK) provides billing and other types of software for essential service organisations. Due to organic growth and acquisitions, the UK and Europe represent over 50% of Gentrack’s revenue, so you can see why European stability could be a cause concern for management.
Xero Limited (ASX: XRO) is one of the world’s leading cloud accounting software businesses. Whilst Australia and New Zealand is its home, the UK is a major source of growth. In the first half of FY19 Xero’s UK revenue grew by 46% in constant currency terms, which represented just over a fifth of its total revenue.
Other ASX businesses that include some UK profits are essential software business Hansen Technologies Limited (ASX: HSN), private health business Ramsay Health Care Limited (ASX: RHC), and funds management business Janus Henderson Group Plc (ASX: JHG).
Is it time to buy these ASX shares?
The drama with Brexit is nowhere near finished. The potential outcomes range from no Brexit to the UK crashing out of the EU with no deal at all. This isn’t the type of ‘bet’ I want to make with my investing.
I like to go for shares where the opportunity is good but the risks are low, such as the shares mentioned in the free report below.
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Disclosure: At the time of publishing Jaz owns shares of Ramsay Health Care, but that could change at any time.
