The Great British Pound continued it slide today having fallen ~2.4% against the dollar just this week; as Brexit jitters worsen. Sterling has been one of the worst performing currencies against the dollar this year, down around 4% on a total return basis, while the offshore renminbi, which investors seem to shy away from at the hint of volatility is up around 2% in the same timeframe. With the referendum just 3 months away we expect the pound will continue to come under pressure; the Tory split and recent atrocities in Brussels have not helped sentiment.
Another aspect spooking investors is the UK's current account deficit, which as at 2015 sits at 4.74% of GDP (according to IMF data). In absolute terms the most recent data suggests that the UK is projected to have the world’s second largest current account deficit this year, at USD -130.56bn. Using the IMF current account forecasts, our proprietary NFA model, which assumes the UK will remain in the EU, calculates that the country’s net foreign liabilities as a percentage of GDP will exceed 50% by 2020; thus falling to a “2 star” rated country. In our view there are plenty of currencies that offer a better store of value than sterling at the current time.
On a brighter note, the majority of the voters in New Zealand still favour the Union Jack. After ~USD 26m was spent on the 10 month campaign, ~57% elected to keep the existing flag. One has to wonder whether they should have just splashed out on some tasty Easter eggs instead!
Enjoy the rest of the day and happy holidays!