Everyone is talking about the political implications of this move. But there are some economic ripples as well. What do you feel about the vote, and what are the impacts on international finance that you see as most significant?
Kenneth Kam: “My personal opinion is that it shouldn’t have happened. It created confusion and chaos. And the ripples—both political and economical—will be felt years from now. As for the financial impact, I believe there are three implications.
One, it will take quite a while for the British pound to recover. When the pound is that low, it’s a great time to go shopping in the UK, if you can!
On a more serious note, the UK may lose its position as the world’s number one Forex hub, and the ways in which this can happen are many. There is 5.3 trillion U.S. dollars going around the world in a single day. The UK controls 2.7 of that 5.3 trillion. The United States is in second place at 1.2 trillion a day. These numbers are based on a 2013 survey. A new, updated survey is due, so we will soon see how Brexit changes the UK’s standing.
If the UK does lose its post as the world’s top financial hub, it’s possible that the flight of safety will go to the United States. As you have seen, the US currency and Singapore currencies have strengthened. A lot of money is going to other Forex hubs in the world; yet to be calculated and digested is just how much that is. Another potential outcome is that the UK might be deposed by the US. That is a possibility, but we aren’t sure until we analyze the numbers over the next few years.
The third financial implication to note is that a door has been opened to Asian countries such as Thailand, Singapore, and Japan. These nations have an opportunity to develop their economies and improve their positions on the world stage. Because it is now cheaper to import goods from the UK and from the EU, I foresee an increase in business between Asia and EU countries and between Asia and the UK, which will help Asian nations build stronger relationships with Europe.”
Often huge tectonic shifts in geopolitics play out in phases. What do you see unfolding in the coming weeks and months?
Kenneth Kam: “People might get the idea that it’s acceptable to have a crazy change, and that’s a dangerous precipice that will cause more chaos and confusion in the world. There are talks in the market that Brexit could start World War III. When markets are not stable, there might be a domino effect of bigger implications to come. We are second-guessing; we don’t know what will be happening. A third world war is an extreme prediction, a doom and gloom story.
But times are changing and maybe people in the world want to see some kind of a change. Maybe they feel change is better for their lives rather than the good old norm. This mentality may give Donald Trump some impetus because he is seen as a crazy change. Trump congratulated the UK on their move to leave while Obama warned of the political implications of the same. As traders in the geopolitical plane, we will be looking closely at the USA election in the coming months.”
What did traders do to brace themselves for a potential economic effect on Forex because of Brexit?
Kenneth Kam: “One of the quotes I live by is: “Fortune favors the prepared mind.” So, as money-making traders, we have to be prepared for any eventuality, and we trade accordingly. We knew it could go all the way positive or all the way negative, and it went negatively: One day after Brexit, the pound was down more than 8% and Euro was down by 2%. As traders, as good traders, we were already mentally prepared.”
Did people you know express any concern to you about Brexit?
Kenneth Kam: “On the contrary, many friends asked me if I took advantage of the dip. I have told them that everything is okay, and I made some money. It was a good day for me, personally. Two trillion USD were lost in the market over a span of twelve hours. But is this two trillion actually lost? No, because the market behaves in a zero sum game. When two trillion is lost, it is gained somewhere else. So, if traders are prepared, they can actually gain this money in the marketing floating around looking for owners. This is how traders braced themselves for the effect of Brexit on foreign exchange.”
What do you predict will happen to the GBP over the next few months?
Kenneth Kam: “The British pound hit its lowest point since 1994, and you can also see that it has somewhat bottomed out. As a trader, I think it might just range up and down close to the bottom for the next few months. If there is any good news, it might go up slightly. I doubt it will go any lower than this. Unless something drastic happens, I don’t think the British pound will dip below this lower threshold.”
Much of the focus is on Europe right now, and understandably so. But the past couple of days have shown this rippling through all financial markets. Is there Asia-specific fallout that you can discuss?
Kenneth Kam: “First, to quote Franklin D. Roosevelt, ‘we have nothing to fear but fear itself.’ I don’t actually think there will be a fall out. Instead, there will be a scramble in the Asian markets. Asian countries have been investing in their relationships with Europe as a whole, so now that the UK is leaving, they will each scramble to reestablish their good will and relationships with the UK. Therefore, it’s more of a repositioning. With any change, and especially with one as big as Brexit, we have to reposition ourselves to catch the benefits and to avoid the pitfalls.
In May 2012, Lee Kuan Yew, the first Prime Minister of Singapore, said, ‘I do not view the European Union as an inspiration for the world. I view it as an enterprise that was conceived wrongly because it was expanded too fast and it will probably fail.’ Because of this foresight, countries like Singapore knew they would need their relationships with the UK. Long before the referendum, Singapore sent its Prime Minister to the country to reestablish relationships and to catch a glimpse of what is happening in the United Kingdom.
When there’s uncertainty, fear grips and takes over. But there are people who can take advantage and become billionaires overnight by staying even keeled. Many millionaires and billionaires were made overnight because of the crushing of the pound and the euro. These traders are laughing their way to the bank, now, quietly thinking about what to buy with their new fortunes!”
Aside from some prepared Forex traders, who are the other “winners?” Which countries have benefited from Brexit?
Kenneth Kam: “One of the winners in terms currency in the referendum’s aftermath is the United States, because the USD has strengthened based on the flight of capital. Gold has gone up about 5%, too. Gold was at a two-year high in price increases. Twenty-four hours after the vote, Gold shot up as much as 8%, putting it at its highest in more than two years. It then stabilized at a 5% increase.”
How did this happen?
Kenneth Kam: “This was a flight of safety. People put their money in USD and Gold because they think they are safe havens. People took money out of Oil, the GBP, and the EURO and put it towards USD, Gold, and a few emerging markets.”
Did you see that coming?
Kenneth Kam: “More or less I saw it could be something like that, but I was focused on EURUSD because that is how I make my money. I will say that I really thought the UK would stay. I was very surprised that they left, but I knew it could go both ways. I was vigil, alert, and prepared for either direction. But I was shocked nonetheless.”
What do people in the Forex world need to know right now about Brexit to make good decisions?
Kenneth Kam: “The lesson that we traders learned is that the world is full of ups and downs, but if we are prepared to take advantage of the bear runs and the bull runs, we will make the best out of it. If we are not prepared, then we will not be able to benefit. The Forex world is a stage for us to trade, to be happy, and to earn lots of money! And, in the real world, of course what was the lesson? If you know that the British pound dropped, go for a holiday! When a country’s currency drops, it’s the best time to go visit that country.
The bottom line is we just need to be focused and ready to catch any opportunity that is thrown at us.”