5 ASX shares vulnerable to a Brexit meltdown

Although it’s on the other side of the world the UK is still an important market for many companies on the benchmark S&P/ ASX200 (ASX: XJO), which is notable due to the massive problems the UK is having in negotiating a ‘Brexit deal’ from the European Union.

Any exit deal needs to include a new ‘free trade’ deal with the EU as otherwise the UK’s economy and its largest private companies could take a massive trade hit.

In particular the UK’s giant financial services sector is vulnerable to a ‘no deal’ Brexit outcome as it relies on ‘passporting’ within the EU, or the reciprocal right to provide financial services in other member states under EU law.

If no deal is agreed to replace the existing passporting rules and to replace the Markets in Financial Instruments Directive I & II (MiFID) then some of the following companies could face bigger problems than analysts are currently pricing in.

Macquarie Group Ltd (ASX: MQG) has substantial operations in the UK and Europe across syndicated lending, asset management, and many other financial services that could exist under the current passporting rules. It’s reportedly been making extensive contingency plans for Brexit, but how the eventual outcome effects Macquarie remains to be seen.

Janus Henderson Group (ASX: JHG) is the combined group that includes the Henderson funds management business that has significant leverage to UK and European equities. The stock is already down 40% over the past year on the back of weakness in European equities and investors may not be out of the woods yet.

Iress Ltd (ASX: IRE) is the financial software provider that has most of the US and Europe’s largest asset managers as its clients. Any significant slowdown in London’s international financial services space could eventually flow through to the health of Iress’s subscriber base.

Gentrack Group Ltd (ASX: GTK) as an airport and energy retailer software-as-a-service billings system provider may seem an odd choice, but it’s already reported that Brexit nerves are affecting its substantial UK operations. The group has declined to provide a forecast for its FY 2019 and the forecast may come in weaker-than-expected.

Clydesdale & Yorkshire Bank (ASX: CYB) has enough problems of its own historical making without Brexit and remains a poster boy for many of the ills in the fallen British banking sector. The stock has fallen 41% over the past year and management has already started to blame the underperformance on Brexit related problems.

Motley Fool contributor Tom Richardson owns shares of Macquarie Group Limited.

You can find Tom on Twitter @tommyr345

The Motley Fool Australia has recommended GENTRACK FPO NZ and IRESS Limited. 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 Scott Phillips.

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