The risk of a hard Brexit just went up by a giant notch and is adding to a growing list of global issues that could rock the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index in 2019.
There are several ASX-listed stocks that could be directly affected by the UK economic turmoil should the country leave the European Union (EU) without an agreement to guide cross border commercial and economic transactions – a situation termed a hard Brexit.
Interestingly, local and international investors have brushed off this concern even as UK Prime Minister Theresa May suffered a landslide defeat as she tried to get the British parliament to back her plan to exit the European Union.
Bulls not deterred by Brexit
The UK FTSE 100 Index jumped 0.6% overnight while the British pound rallied. Our ASX 200 index is also trading in the green in morning trade.
What is more telling is that several ASX shares with UK operations have also jumped higher in early trade.
This includes the Premier Investments Limited (ASX: PMV) share price which is up 1.8% at $14.29 even as it expands its Smiggle store network in the UK, the Afterpay Touch Group Ltd (ASX: APT) share price that is 2.4% higher at $13.90 despite making a recent acquisition in that market, and the Praemium Ltd (ASX: PPS) share price is 3.5% stronger at 75 cents even though the investment platform as direct exposure to the UK.
Make no mistake, a hard Brexit is likely to prompt a sell-off in UK assets and the pound and it's hard to imagine how ASX companies with UK businesses won't be affected.
Still hope
However, the price reaction could be a sign that investors are expecting a more amicable Brexit outcome even as Theresa May's agreement with the EU got shot down.
A hard Brexit is not an inevitable next step as the political setback could prompt the EU to give further concessions to the UK as no one wants to see a hard Brexit.
Some UK politicians are also pushing for a second Brexit referendum as they believe voters were not given the full picture on what leaving the EU entailed when the British public first voted to leave the union.
Another outcome could be fresh UK elections although I don't see how swapping prime ministers at this stage will help resolve the issue.
But not all ASX stocks in the Brexit firing line is escaping unscathed today. UK bank CYBG PLC/IDR UNRESTR's (ASX: CYB) share price shed 0.9% to $3.28 while appliance maker Breville Group Ltd's (ASX: BRG) share price lost 0.6% to $10.67 at the time of writing. Breville sells its coffee machines and toasters in the UK market.
