As the economy of the United Kingdom gets plunged deeper and deeper into political and economic uncertainty by the day, investors are grappling to find new avenues to park their funds as the traditional avenues of stocks and bonds do not seem so lucrative. Of the many investment vehicles available, there is Bitcoin, the cryptocurrency that caught the worlds attention in 2011 and is not affected by any of the economic parameters impacting traditional investment vehicles. When bitcoin first started transacting as a currency, the interest among the general public about this new investment avenue began to rise as soon as its price started to move up sharply against most of the major physical currencies. However, the price movement of this electronic cryptography instrument have over the years been extremely volatile forcing many people to stop trading in this currency and shift to more traditional options. Several finance and economics experts however have warned that cryptocurrency is no more than a Ponzi scheme or a pyramid scheme which, in due course of time, will fail and will take down with It many an investor’s hard-earned money.
UK Trade Data
On 9 September 2019 the office of the National Statistics of the United Kingdom released data of UK trade for the month of July 2019. The data pointed towards the below-mentioned major facets.
- The total trade deficit of United Kingdom (goods and services) shrank during the three-month period to July 2019 by £14.9 billion to £2.9 billion; the primary reason for this was a narrowing of the trade deficit in goods by £14.9 billion to £29.3 billion, mostly due to a slide in imports.
- The Imports of goods into the country fell by £14.1 billion to £119.5 billion during the three- month period to July 2019, as the imports of unspecified commodities like gold (including non-monetary gold bullion), chemical stocks, machinery stocks and transport equipment fell.
- During the three month periods to July 2019, excluding the unspecified goods (including non-monetary gold bullion) the total trade deficit during the period shrank by £3.7 billion to £4.7 billion; the exports during the three month periods to July 2019 fell by £2.5 billion to £159.0 billion and imports during the period also fell £6.2 billion to £163.8 billion.
- If the effects of inflation are removed, the total trade deficit would shrink by £18.2 billion to £1.4 billion during the three months to July 2019.
- The total trade deficit (goods and services) of the country during the twelve-month period to July 2019 expanded by £19.8 billion to £43.2 billion, which was primarily on account of a widening of the goods deficit of £15.2 billion to £149.8 billion.
Call it trade deficit, shrinkage in exports or imports, the economy of the United Kingdom has done poorly for the month of July 2019 and the situation is most likely deteriorate as the country moves towards Brexit. The FTSE 100, which represents the largest companies in the United Kingdom, in terms of revenues and market capitalization, is considered by many as a reflection of the British economy. Along with its small cousins, the FTSE indices are well studied by economists, debt market makers and stock market professionals alike to carefully consider the implications of any unwarranted impact of the general economic parameters on the Indices and vice versa. However, with the impact of the uncertainties posed by Brexit coming into the foray, it seems that the index has broken down every relationship it had with other economically important parameters e.g. currency exchange rates, the unemployment rates and the consumer confidence among United Kingdom residents to name a few.
The real-time shrinkage in business activity of United Kingdom as consequence of Brexit is the single largest threat faced that country today. Should the negotiations between United Kingdom and European Union fail to work out a suitable deal to ensure a smooth parting of ways between the two blocks, there will be very little time left for the British government to take any decisive measure to arrest the downward slide that the country’s economy is already in to. The United Kingdom-domiciled stocks will also suffer the same fate as the economy. The scenario played out on the London Stock Exchange is however following the global trends in its rally over the past three years, despite of the valuations of individual stocks on the London Stock Exchange remaining depressed because of domestic currency devaluation. The indices at the Exchange are trading lower compared to their European counterparts and forward the earnings multiples of most companies are at a 13-year low.
Given the situation on the London Stock Exchange, it seems like it is an unprecedented buying opportunity for investors who are interested to pick up value stocks. Experts however, caution that this could very well be a value trap having been caused on account of the weakening British pound among a host of other factors, which the investor should be wary about before making any investment decision. Having said that there is little that remains in the available investment avenues that are not co-related to the British Pound.
Cryptocurrencies for one are not affected by economic upswings and downturns or central bank rate revisions nor are their values derived out of any other underlying asset class. However, the risks associated with this type of currency are high complexity, lack of any guaranties and asset backings and competition from other cryptocurrencies like Libra promoted by Facebook. These very risks and complexities associated with this currency makes it a highly volatile asset class compared to any other alternative asset class.
However, despite the high risks involved and the gloomy state of affairs in the rest of the marketplace, cryptocurrency has inspired many investors to look towards this asset class as well.
However, the bloodbath in trading in the currency over the last week has put any interest on the minds of any persevering investor, interested in this asset class, to rest for the time being at least.