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Article / 16 June 2016 at 9:45 GMT

Saxo on Brexit: Aussie financials dip in anticipation

Trading Desk / Saxo Capital Markets
  • UK-linked Aussie firms see share declines as Brexit looms
  • BT Investment Management could decline to 8.04 support
  • Brexit would be a major dislocation for many Aussie banks
  • For more on the UK referendum, click here for our Brexit page
Luna Park

A Brexit vote could bring all manner of mayhem to Sydney's placid shores. Photo: iStock

By Saxo Capital Markets Australia

Australian-listed companies that derive over half of their revenue from the UK have started this week with notable weakness, mirroring losses and anxiety seen across the globe as Brexit fears started to weigh in over the weekend. 

Following a three-day long weekend (the ASX was closed Monday due to the Queen’s birthday), three financial names – BT Investment Management (BTT.xasx), CYBG PLC (CYB.xasx), and Henderson Group (HGG.xasx) – gapped down to start the Tuesday ASX session with decent losses which appear as if they could potentially continue until the UK vote on June 23 or at least, move in sync with the global financial sector. 

Macquarie Bank (Australia’s one and only investment bank), which derives under 20% of its revenue from the UK, has also seen its shares under pressure this week and is expected to move in line with the overall financial names.
Other notable names that have a presence in the UK are QBE Insurance (QBE.xasx), which sources roughly 30% of its revenue from the UK while Iress Limited (IRE.xasx) and Westfield Group (WFD.xasx) each make around 35% of their revenue from this region. 

Damage has been limited on Westfield, but QBE Insurance and Iress Limited have not managed to escape the selling with its shares gapping down on Tuesday.

The following is a quick analysis and background on the three financial firms that obtains over half of their revenue from the UK: BT Investment Management (BTT.xasx), CYBG PLC (CYB.xasx) and Henderson Group (HGG.xasx). These are three firms that will be most impacted if the UK votes to leave.

BT Investment Management

With a market capitalisation of just over AUS $2.7 billion, BT Investment Management provides investment management services to wholesale and retail funds investing in a range of asset classes including equities & fixed income. BT Investment Management derives over 60% of its revenues from the UK. Short interest as a percent of equity float stands at 1.42% over BTT.xasx 

TechnicalsSince spiking sharply in the final quarter of 2015, BT has given back all of those gains so far this year. The 2016 low of 8.09 was the 61.8% retracement level between the all-time high of 13.20 and 4.84 which became the support level at the end of 2013. 

BT is now trading just above the long term uptrend (A) and it also appears to be forming a head and shoulders formation with the potential neckline (B). If we see a genuine breakout below the uptrend (B), BT is expected to decline towards the next support levels of 8.04 and 7.46.

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Source: Saxo Bank


CYBG PLC (CYB.xasx): whose entire revenue is driven out of the UK, is a leading mid-sized UK retail and SME bank with a long-established customer franchise across its core regions (Scotland, North-East England, North West England, Yorkshire and the Humber) and selected national markets.

Demerged from the National Australia Bank earlier this year, CYBG Group offers through its strong local community brands, Clydesdale Bank and Yorkshire Bank, a full range of banking products and services, including mortgages, current accounts, deposits, term lending, personal loans, working capital solutions, overdrafts, credit cards, and payment and transaction services. As of June 9, 1.27% of stocks on issue were reported as short positions.

Technicals: After spending two and a half months of consolidation since the float earlier this year, CYB.xasx made a breakout above 4.21 which became a strong support level during April and May.

CYB.xasx rallied almost 40% from 4.21 but it has handed back decent gains as we approach the referendum next week. The next support level is expected to be 5.03 which is the 50% retracement level between the breakout level of 4.21 to the all-time high of 5.86.

There is a gap at 4.78 which could be filled if CYB.xasx continues to resume the downward momentum below 5.03.

Source: Saxo Bank 

Henderson Group

Henderson Group, with roughly 60% of its revenue coming from the UK, is an international UK based fund manager listed on the ASX and LSE. It is the holding company of the investment management group Henderson Global Investors and provides investment management services throughout Europe, North America and Asia.

As an independent asset management firm, HGG manages a range of managed investment products for institutional and retail investors across multiple asset classes, including equities, fixed income, property and private equity. As of June 9, 1.15% of stocks on issue were reported as short positions.

Technicals: After peaking in November 2015, HGG.xasx followed the overall market lower where it found its bottom in February along with global stock indices. Since bottoming out in February, HGG.xasx was able to retrace 50% of its losses, but the failure to add more gains translated into the stock clocking swift losses and this week threatened to retest those February lows.

Notice also HGG.xasx struggled to hold above its long-term uptrend which started in 2012 and this week’s gapping confirms that the uptrend is over for now.

Source: Saxo Bank 
Applying the range from the November 2015 high to the February 2016 low as a Fibonacci extension to its most recent swing high of 5.49 gives us the following levels to watch to the downside...

50% extension coincides with the February low at 4.38 and a violation of this low opens up 4.12 (61.8% ext) & 3.80 (76.4% ext).

Notice the 100% extension target comes in at 3.27 and this level happens to overlap with a 61.8% (2012 low to the 2015 high) retracement:
Source: Saxo Bank

— Edited by Michael McKenna

Saxo Capital Markets Australia is Saxo Bank's Sydney-based trading desk 


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