Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stocks Correct into Bitcoin Happy Thanks Halving - Earnings Season Buying Opps - 4th July 24
24 Hours Until Clown Rishi Sunak is Booted Out of Number 10 - UIK General Election 2024 - 4th July 24
Clown Rishi Delivers Tory Election Bloodbath, Labour 400+ Seat Landslide - 1st July 24
Bitcoin Happy Thanks Halving - Crypto's Exist Strategy - 30th June 24
Is a China-Taiwan Conflict Likely? Watch the Region's Stock Market Indexes - 30th June 24
Gold Mining Stocks Record Quarter - 30th June 24
Could Low PCE Inflation Take Gold to the Moon? - 30th June 24
UK General Election 2024 Result Forecast - 26th June 24
AI Stocks Portfolio Accumulate and Distribute - 26th June 24
Gold Stocks Reloading - 26th June 24
Gold Price Completely Unsurprising Reversal and Next Steps - 26th June 24
Inflation – How It Started And Where We Are Now - 26th June 24
Can Stock Market Bad Breadth Be Good? - 26th June 24
How to Capitalise on the Robots - 20th June 24
Bitcoin, Gold, and Copper Paint a Coherent Picture - 20th June 24
Why a Dow Stock Market Peak Will Boost Silver - 20th June 24
QI Group: Leading With Integrity and Impactful Initiatives - 20th June 24
Tesla Robo Taxis are Coming THIS YEAR! - 16th June 24
Will NVDA Crash the Market? - 16th June 24
Inflation Is Dead! Or Is It? - 16th June 24
Investors Are Forever Blowing Bubbles - 16th June 24
Stock Market Investor Sentiment - 8th June 24
S&P 494 Stocks Then & Now - 8th June 24
As Stocks Bears Begin To Hibernate, It's Now Time To Worry About A Bear Market - 8th June 24
Gold, Silver and Crypto | How Charts Look Before US Dollar Meltdown - 8th June 24
Gold & Silver Get Slammed on Positive Economic Reports - 8th June 24
Gold Summer Doldrums - 8th June 24
S&P USD Correction - 7th June 24
Israel's Smoke and Mirrors Fake War on Gaza - 7th June 24
US Banking Crisis 2024 That No One Is Paying Attention To - 7th June 24
The Fed Leads and the Market Follows? It's a Big Fat MYTH - 7th June 24
How Much Gold Is There In the World? - 7th June 24
Is There a Financial Crisis Bubbling Under the Surface? - 7th June 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Brexit Effect works to Boost Diageo shares

Companies / BrExit Aug 25, 2016 - 04:50 PM GMT

By: Submissions


Alexander Bowring writes: After the referendum result was announced, Diageo CEO Ivan Menezes went on to say the decision was “better for the UK, better for Diageo and better for the Scotch whisky industry that we remain in.” This begs the question, why have Diageo’s shares risen dramatically immediately following the leave vote? Sitting at under £18 prior to the result, they jumped to almost £20 each, signalling a new high for the last 12 months.

As with all shares on the volatile stock market, the change is short term. When economic times are uncertain, investors prefer to hold their money in companies that pay a regular dividend, an area where Diageo shares have performed strongly before 2016. With a strong presence in many global markets, and all within sectors where consumers generally do not cut back on during hard times, the company is in a noticeably strong position. However, this is not the sole reason. Following the fall in the pound’s value, exports have instantly become cheaper, and since less than 10% of revenue for Diageo is from within the UK, this drop instantly benefits the profits they generate.

This change is not exclusive to Diageo shares, and other scotch producers will also benefit if they export a fair share of their production. Wine producers will also be in a strong position, assuming they export significantly, however if they import the majority, they will find the climate more difficult.

The lower pound will also effectively make Diageo’s debt comparatively cheaper, as the majority is valued in sterling. All these short-term benefits have directly impacted Diageo shares, helping stimulate the rise in value. However, this change shouldn’t have too much effect in the short-term.

Taking the above into consideration, the anxiety seen within the statement by Diageo CEO Mendez will materialise in the future. Once Article 50 is invoked, British companies only have a period of up to 2 years before severe changes are made. During this process a lot of announcements will be made, and the volatile nature of the stock market will be seen in full effect as investors react.

There are a lot of unknowns, and no one will know for sure whether UK producers will be able to export in the same manner as they do today. With trade deals being negotiated independently, it will create a lot of varying rules and regulations, and those currently in place may no longer be existent.

The term “Scotch Whisky” is one protected due to Geographical Indication, similar to Champagne. However, once “Brexit” takes place, will this remain? There is a lot of uncertainty, and while many believe that the reduced value of the pound may outweigh any potential long-term negatives, many believe Diageo shares and other similar Scotch producers share prices will remain volatile. All in all, when it comes to Diageo shares, it’s safe to say that things are up in the air and that there are many twists and turns likely to unfold before the post-Brexit market steadies.

Spreadbetting, CFD trading and Forex are leveraged. This means they can result in losses exceeding your original deposit. Ensure you understand the risks, seek independent financial advice if necessary. The value of shares and the income from them may go down as well as up. Nothing on this website constitutes a solicitation or recommendation to enter into any security or investment.

Alexander Bowring is a London based writer and a Southampton Solent University Screenwriting graduate. He has worked alongside TV personality and Telegraph feature writer Alison Cork, whilst also having produced content for ITV, This Morning, Canvas8, Who's Jack, Alison at Home, and Bonallack & Bishop Solicitors. Alexander also has a keen interest in investments.

Copyright © 2016 Alexander Bowring- All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

© 2005-2022 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in