Business | After the Brexit vote (II)

Picking losers

How different industries are exposed to the turmoil in Britain

SPARE a thought for Brammer, a British supplier of bearings and other industrial gear for factories in Europe. The exporter had boasted revenues of £717m last year (then $960m), but sales dipped before the referendum. Brammer now faces a rout, amid warnings of slumping demand and currency headaches (because the firm has lots of dollar- and euro- denominated debt). By July 5th its share price had tumbled by two-thirds since voting day—more than any firm listed in London.

If Brammer is a contender to be the company worst-affected by Brexit, it is not alone in the gloom. By one measure of global connectedness—combining indices of cross-border loans, legal relationships, data-storage hubs and so on—Britain’s economy is one of the most open in the world. The earnings generated by foreign firms from their investments in Britain amount to £70 billion, equivalent to about 10% of all of the profits made by the top 500 European listed firms, or roughly 1% of global business profits.

Plenty of these investors have placed bets on Britain’s domestic market, which had previously been buoyant but now faces the risk of recession. Li Ka-shing, a Hong Kong tycoon, owns utilities and a mobile network; Walmart, an American retailer, controls Asda, a chain of supermarkets; investors from Qatar have piled into commercial property; Ferrovial, a Spanish infrastructure firm, has interests in a string of British airports, including London Heathrow. The new economy is not immune from pessimism. Analysts see earning prospects for Netflix, an online video-service, dampened by slower GDP growth in Britain and the rest of Europe, for example.

Carmakers face a double whammy. First, the brakes are being slammed on in a market that had been one of the biggest and fastest-growing in Europe. Motorists in Britain bought 2.6m new cars in 2015, but Exane BNP Paribas now expects a 10% decline in demand in the second half of this year, plus a further 10% fall early in 2017. A Europe-wide downturn may follow. Morgan Stanley suggests car sales, once forecast to grow by 5% this year, will now only expand by 3.7%. In 2017 it suggests a 2.2% contraction is possible.

Second, Brexit threatens carmakers’ access to European export markets. Two-thirds of all vehicles produced in Britain are exported to the EU, and mass-market models, sold with slender margins—such as those made by Toyota, Nissan and Honda—are most vulnerable to currency swings or any future tariffs. Small wonder that Nissan’s boss, Carlos Ghosn, said this week that “we are a little worried”.

INTERACTIVE: Integration within the European Union

For other exporters, such as Nippon Sheet Glass, which bought Pilkington, a British glassmaker, in 2006, and BASF, a German chemicals giant that operates ten plants in Britain, any loss of access to the big EU market would be disastrous. About 80% of what BASF makes in Britain is exported, largely to continental Europe. Aerospace suppliers, such as GKN Aerospace, which sells 67% of its output to EU customers, are similarly exposed.

By contrast, firms that are headquartered in London for cultural, legal and tax reasons, but that have little exposure to the British economy and do not use Britain as an export hub—companies such as SABMiller, a brewer, or ArcelorMittal, a steelmaker—will not be fazed by recession and the falling pound. Promises, for instance, to bring corporate tax below 15% in Britain, will cheer them too—even as this annoys the country’s European partners.

And a select few professions might even prosper from the turmoil and its divorce from the EU: lawyers, headhunters, tax consultants, relocation firms, budding trade negotiators and soothsayers could all be in demand. This week, for example, KPMG, an accounting firm, announced a new “head of Brexit”. (It is not Boris Johnson.)

This article appeared in the Business section of the print edition under the headline "Picking losers"

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