5 Brexit strategies Canadian investors should know

With a “Leave” vote, Canada government bonds would win big

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This article was originally published on Canadian Business

Ahead of Britain’s historic vote over whether to leave the European Union on Thursday, June 23, there has been plenty of speculation about the potential fallout for the global economy, and Canadian investors are no exception. While the five financial experts we spoke with all agreed that on the eve of the referendum, the chances of a “Brexit” seem fairly narrow, they each had their own takes on what a “leave” vote could mean for Canadians, and what investors should keep in mind going into Thursday. Here are some investing tactics to consider as the vote looms:

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Purchase protective puts

“One thing that investors could do in the lead up to the vote is to purchase protective puts [a risk-management strategy that limits downside risk]. In a situation like this, where investors may be concerned about the potential fallout, protective puts are something that we encourage investors to think of as a sort of insurance. They offer some degree of protection in the case of an event such as Brexit; they help to mitigate risk.”

— Elvis Picardo, Vice President of Research, Global Securities


Look out for government bonds

“As far as the markets go, if the leave camp wins, we expect to see a flight to quality trade happen, at least in the short-term. There are many unknowns about how it will all play out, which means that the market will generally be down. You tend to see the benefit come to U.S. treasury bonds, and Canada gets some spill over impact from that as well. In the event of a leave vote, government of Canada bonds would be the big winner.”

— Patrick O’Toole, Vice President, Global Fixed Income, CIBC Asset Management

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A Leave vote could bolster the loonie…

“As far as Canadian investors go, I think that in the event of a leave vote, other investors will probably try and find safe havens around the world for their pounds. I do think that some of that money will gravitate towards the U.S. and Canada, because they’re thought of as relatively stable countries. So I think that, if anything, a leave vote could actually bolster both the U.S. and the Canadian stock market.”

— Tom Di Galoma, Bond Trader and Managing Director, Seaport Global


…Or not

“In a leave scenario, the general consensus is that the pound would fall and that the U.S. dollar would increase. That would obviously lead to a falling Canadian dollar at the same time, as there is a rush to the U.S. dollar and possibly the Chinese yuan. It stands to reason that heightened uncertainty, and a desire for safer assets, would lead people to buy U.S. assets, at the expense of European and U.K. assets, and Canadian assets as well.”

— Jean-Francoise Perrault, Chief Economist, Scotiabank

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Fundamentals top noise

“We use the phrase, ‘fundamentals top noise’—for the Canadian investor, unless you’re heavily invested in Europe or the U.K., the fundamentals would suggest that you should stay the course, and that geopolitical events such as brexit will resolve themselves, without much of a lasting impact on the market.”

— Philip Petursson, Chief Investment Strategist, Manulife Investments

 

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