MENU

First Brexit… then Trump… Now, it’s time for Pro

Is your portfolio really prepared for what’s coming next?

To help investors like you navigate this historically uncertain — yet high-flying — market and prepare for an inevitable downturn, we’re re-opening our Motley Fool Pro Canada service to a select few new members for a short time.

To discover how Pro Canada could help you to increase your upside potential… reduce your downside risk… and earn paycheque-like income in the process, simply click here — before the small number of spots we have left are all gone!

Will a Brexit Affect Canadian Investors?

The big story dominating business headlines this week is the so-called Brexit, a referendum being held in the United Kingdom to decide whether or not Britain should leave the European Union.

Voters seem to be split almost 50/50 on the issue. Folks leaning towards no point out negatives to membership like high levels of immigration–which critics say take low-end jobs from local workers–as well as Britain not being fully in charge of its own affairs. In other words, if the country stays in the EU, it’s forced to play by the same rules as everyone else.

Pro-EU voters like the ability to easily travel throughout Europe as well as the ability to work in any member country without needing a visa or permit. Additionally, U.K. prime minister David Cameron has negotiated special treatment for Britain if it stays in the EU, getting perks like being able to keep its own currency and putting limitations on migrant workers sending money back to their own country. U.K. banks wouldn’t be forced to submit to EU guidelines either.

Many North American investors believe the Brexit is nothing but a distraction, which won’t affect markets on our side of the pond at all. These investors are wrong. Here’s why Canadian and American investors need to be keeping an eye on Thursday’s referendum.

Potential fallout

Billionaire investor George Soros knows a thing or two about betting against the U.K. pound. Back in 1992 his Quantum Fund made billions betting against the currency–a date historians refer to as Black Wednesday.

In an article published in The Guardian on Monday, Soros warned of dire consequences if electors voted to leave the EU. Without full access to European markets, the average income would fall from £3,000 to £5,000 per household. Additionally, Soros believes the currency would fall between 15% and 25% immediately, which is very bad news for an economy that has to import so much.

It’s obvious that such an event would send European shares reeling. It’s also quite likely that damage wouldn’t just be limited to that side of the ocean. Investors are notoriously fickle, often sending markets cascading lower for no good reason. Imagine the short-term carnage that could happen with a very good reason.

What about specific stocks?

If a Brexit sends the pound reeling, it’s only logical that currency investors looking for a safe haven would choose the U.S. dollar as a suitable place to be. The U.S. dollar has been the world’s reserve currency for nearly a century now.

This would be bad news for Canadian stocks that are dependent on a lower U.S. dollar. Companies that import merchandise from China would be among the most affected. Reitmans (Canada) Limited (TSX:RET.A) and Dollarama Inc. (TSX:DOL) import almost all of their products from China, and both stocks have sold off in recent trading sessions.

Strength in the U.S. dollar is also bad news for Canada’s oil producers. Since oil is priced in greenbacks, strength in the currency is likely to translate into commodity weakness. Since Baytex Energy Corp. (TSX:BTE)(NYSE:BTE) has become a levered play on the price of oil, it’s obvious such a move isn’t good news for that company.

The good news for Baytex is the company is well prepared to handle temporary downturns. It has no major debt due until 2021, and its production in Texas is profitable even at prices below $40 per barrel.

More generally, it looks pretty likely stocks will sell off if U.K. voters decide to leave the EU. These types of moves are bad news for traders, but great news for investors looking to hold for decades. If such an event happens, investors should forget about the noise and load up on great companies that are trading for bargain prices.

Get ready to load up on these three buy-and-hold-forever stocks!

A Brexit could provide the best buying opportunity in months. You'll want to be prepared if that happens.

We have just the stocks to buy during a downturn. These are some of Canada's finest, stocks that have been proven to perform through thick and thin. Check out our special FREE report: "3 Dividend Stocks to Buy and Hold Forever". Click here now to get the full story!

Fool contributor Nelson Smith owns shares of REITMANS (CANADA) LTD., CL.A, NV.

NEW! This Stock Could Be Like Buying Amazon In 1997

For only the 5th time in over 14 years, Motley Fool co-founder David Gardner just issued a Buy Recommendation on this recent Canadian IPO.

Stock Advisor Canada’s Chief Investment Adviser, Iain Butler, also recommended this company back in March – and it’s already up a whopping 57%!

Enter your email address below to claim your copy of this brand new report, “Breakthrough IPO Receives Rare Endorsement.”

I consent to receiving information from The Motley Fool via email, direct mail, and occasional special offer phone calls. I understand I can unsubscribe from these updates at any time. Please read the Privacy Statement and Terms of Service for more information.