Brexit Fallout: 6 ASX shares investors might want to avoid


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.

Source: Company Presentation

Source: Company Presentation

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.

Markets are likely to remain volatile for a while so it is just as important for investors to buy the right shares as it is to avoid the wrong ones.

3 Rotten Shares to Sell, and 1 to Buy Today

After a double-digit rally for the ASX since 2016 lows, investors should be on high alert. You'll find a full rundown below of 3 shares we think you should avoid today plus one top pick worth buying, even if the market turns south and the RBA keeps rates at an "emergency low." Simply click here to uncover these stocks.

Motley Fool contributor Christopher Georges owns shares of BT Investment Management Limited and Macquarie Group Limited. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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