Although all eyes have been focused upon the Brexit vote and the recent statement that formal proceedings to leave the European Union will begin in March 2017, investors are already looking ahead. As the impact of this referendum appears to be somewhat muted in relation to the more negative scenarios painted by some analysts, CFD traders are now wondering how to capitalise on potentially undervalued positions in the coming year. What assets are worth noting and why could these be great ways to leverage a position within a fluid marketplace? Feel free to use this article as a go-to-source during the coming months.
Rising Bond Yields?
Before analysing individual shares, it is important for CFD traders to consider the impact that rising bond yields may have. There is still a chance (although slimmer than in the past) that the United States may choose to raise its benchmark interest rates. This would potentially place upward pressure upon the borrowing costs within Great Britain (1). Assuming that this scenario takes place, gilt prices will fall (as will the prices of certain bonds).
This would allow bond yields to be an attractive alternative when compared to open-market investments. In other words, it is a good idea for CFD traders to keep an eye on the bond market. This is especially important immediately after the next Federal Reserve meeting that is scheduled for November.
The Benefits of a “Hard” Brexit
Many investors feared the results of what was called a “hard” Brexit immediately before and after the referendum. Much like the overall impact of such a move, it appears as if there are less concerns than in the past. There is nonetheless still a point to be made here.
The Prime Minister has stated that she wishes these proceedings to move forward in March 2017 (2). Of course, the process itself could take as long as two years to complete. Regardless of any long-term ramifications, the fact of the matter is that the markets are set to be relatively volatile between now and then. Immediately before the formalities begin, it is more than likely that the short-term prices of many stocks will dip out of fear alone. This would be an excellent time to enter into short-term CFD positions, as these very same values will be set to make a substantial comeback.
There are also some large companies which are set to do quite well during 2017, even in spite of a potential Brexit downturn. In fact, Barclays has shown that certain price earnings (PEs) are set to remain quite high. Some equities to keep in mind here include (3):
- British Petroleum (BP)
- Savills (SVS)
- Aviva (AV)
- Ryanair (RYA)
There are two other observations to be made here. The first is that even downside scenarios paint the value of these shares quite favourably. Secondly, this analysis by Barclays was released before the referendum and assumed that the impact would be far more damaging than it has been. It is therefore likely that these shares may outperform earlier predictions.
The Technology Sector
Tech stocks always tend to be tried-and-true positions for CFD traders who wish to capitalise on any sudden movements within this sector. It is still wise to stick with buying opportunities associated with larger firms as opposed to small-cap positions. Although 2017 appears to be favourable in regards to the impact of the Brexit upon the markets, financial waves are still likely to occur. It may be better to embrace a CFD strategy that is centred more around a conservative approach as opposed to risk.
The main takeaway point here is that CFD trades may be able to add another “string to the bow” in terms of diversification. Any position should only be executed after a copious amount of research has been performed utilising the tools offered at CMC Markets. Access to comprehensive data sets, the ability to follow late-breaking news and modern charting capabilities are only a few of the benefits provided. A well-informed CFD investor is one who will be able to take immediate action when necessary.