Assured FD Services No Comments

Why The “Experts” Are Getting It So Wrong

2016 has been a year of poor predictions. First the shock of Brexit and then Trump’s presidency, in amazingly similar fashion.  It appears that in the case of political events sometimes the media experts should admit that their prognostic abilities are very limited. A different outcome was predicted in advance of both of these events and therefore the initial reaction was panic. The markets quickly recovered however; in the American elections on the very same day and as for Brexit, it was announced shortly after the British stock market had reached an all-time high. Both cases showing no trace of the feared recession or “Catastrophe”.

The effects of Trump’s election were less pronounced than Brexit, with the market falling at night and recovering throughout the day. In a crazy turn of events, some of the closing rates were even higher than the day before, the Swiss stock market reporting a daily plus of 2%, with the dollar impact discussed in a previous post.

So why did the experts get it wrong?

It’s hard to answer this one specifically but some factors to take into consideration are:

a) The “experts” tend to use the voting polls to assess which way the election is going. The problem here is that the sample polls are either very small or from completely unknown sources. This has been shown time and time again to be largely unreliable.

b) The forecasting results from the surveys are based on past models.

c) In the case of the Presidential Election, Trump supporters were looked down upon in the lead up to the polls, this meant that you had a lot of silent Trump supporters who didn’t want to admit to supporting Trump until it came time to vote, similar to the “Bashful Brexiters” of the UK.

d) Another reason provided was that many of the people who voted for Trump were first time voters. Because experts didn’t think they would show up to vote they weren’t included in the ‘likely voter’ demographic forecasts.

e) No matter what the result, it is almost impossible to predict how the stock market will react in the long term. More immediate effects such as a quick drop e.g. Brexit can be more fairly assessed but medium and long term effects are unknown to everyone.

Since Donald Trump’s election he has promised to invest heavily in infrastructure, renewals, tax reductions and “great” economic growth. Hopefully, this means that he will have a positive effect on the American economy and American companies.

Trump has also said that Britain would be “at the front of the queue” for any trade deal after Brexit and Trump is keen to keep up our “special” trading relationship. This could eventually lead to a stronger pound which is great for British companies that import goods from abroad, but bad for British companies that sell their products overseas.

The story continues…

If you are unsure about your business’s financial future following the Brexit vote and US election then please get in touch. At Assured FD Services we have over 20 years expertise working as a full time and part time financial director for UK leading companies, therefore you can rely on the service we provide.

 

Phil Hall 3 Comments

Election Shock – The Dollar Impact on UK SMEs

Many people in the UK and across the world have been stumped with Donald’s Trump emphatic win in the US elections.  Soon after Donald Trump won the US elections, markets across the world including the UK plummeted. Analysts even compared the shock of Trump’s victory to another Brexit.  However, Trump’s first presidential speech, which was both balanced and reassuring, helped the markets recoup from sharp losses.

Various media houses and financial experts have been quite vocal in their predictions that Donald Trump’s the president of the US can have a bad impact on small businesses in the UK. In fact, they were not happy with Hillary Clinton winning as well, stating that her tax hike plans could impair the already waning capital investments for new start-ups.  In any case, since Brexit, the Sterling had dropped to the tune of 15 percent against the dollar.

The Q13 2016 Global Trade Parameter by ‘World First’, stated that UK SMEs have not done a good job of protecting themselves from the uncertainty of US elections, endangering them to a currency risk of £34.6 billion.

Businesses that purchase US dollars have reduced the length of their forward contracts, from an average of 90 business days to lesser than 70. This makes a majority of US buyers unhedged for a stretched amount of time. With 28 percent of UK small businesses trading dollars, the risk for their business can be increased if the currency moving the wrong, becomes high.

While the economic uncertainty looms large for small businesses following Brexit and US elections, business owners have to pull up their socks and prepare themselves against all eventualities. They must find the right strategy to channelise foreign cash flows better and retain profits.

The SMEs in UK are in for a bumpy ride. It becomes important to have the right foreign exchange protection. The companies will have to be well-versed with their FX exposure and have a plan to alleviate risks during times of sheer unpredictability. A solid financial tool is essential for businesses to develop strategies that can work well both on short and long-term, while exercising risk management and making cash flow transparent.

If you are looking for guidance through these uncertain times, contact Assured FD Services today on 07817 676371. We provide specialist part time Finance Director services to UK businesses, strengthening operating stability and strategising for growth.