Boulder Valley companies eye Brexit warily; local stocks see red

18 of 19 regional stocks go negative in mid-day trading

By Shay Castle and Charlie Howard

Staff Writers

Link to Story: Here

In case of Brexit, keep calm and carry on.

The famous British WWII slogan was also the prevailing sentiment among Boulder County businesses and investors who are most likely to feel any short- or long-term impacts from the United Kingdom's vote to leave the 28-member European Union.

"It's a bit of a wait and see," said Keith Patterson, president of Bergans of Norway's U.S. operations headquartered in Longmont. "The key thing is just waiting to see what trade agreements are going to be negotiated with the U.K. and the EU. They've had free trade in the past before the EU, so hopefully that will continue with this change."

Ball Corp of Boulder expressed similar sentiments of calm.

"Though the markets could be volatile for a period of time, we primarily are in a beverage can business in the U.K. and consumers will continue to drink beverages out of cans, so we don't anticipate an impact to our business," said Renee Robinson, manager of corporate communications. "Also, our acquisition of Rexam PLC (based in the U.K.) remains on track to close pending U.S. regulatory approval."

The markets didn't appear to get the message: The Dow Jones plunged more than 611 points Friday — the biggest drop in 10 months

Nasdaq shed 202 points and the S&P 500 lost nearly 76. The drop erased around $800 billion in U.S. market value, according to the Wilshire 5000 index.

Locally, the stocks of 18 Boulder County companies were down, according to the new Boulder Valley Stock Index. The smallest drop, 1.47 percent, occurred at Longmont's UQM (NYSEMKT:UQM) and the largest drop, 7.42 percent, occurred at Hain Celestial (NASDAQ: HAIN), which has a major facility in Gunbarrel. Only Boulder's Surna (OTCMKTS: SRNA) rose in value during the day. Its shares were up 1.56 percent.

European markets went into a panic as well. Britain's FTSE 250 lost 7.1 percent, Germany's DAX slid 7.04 percent, the pan-European STOXX 600 index was down 7.34 percent and France's CAC index dropped to 8.6 percent.

Despite the turmoil, Garvin Jabusch, chief investment officer at Boulder asset management firm Green Alpha Advisors, predicts a swift return to normalcy.

"What history shows us is that markets react for a couple days, and it's back to normal," Jabusch said. He recalled a few recent political upheavals — the Greek default, the U.S. fiscal cliff — with similar market reactions.

"People were freaking out just about as badly, and within a couple of weeks, the markets were back to normal.

"If history is any kind of guide, days like today present a good buying opportunity," he said.

Effects on trade as a result of currency fluctuations are potentially more concerning to local companies, if British buying power becomes limited.

Following the vote, the British pound sterling dove to its weakest level in 31 years. The pound-to-U.S. dollar exchange rate is now similar to what it was in 1985. The euro, shared by 19 members of the EU, fell 2.89 percent against the dollar.

Jabusch thinks Colorado exports might experience some "short-term disruption" but believes things will be back to "business as usual" within a few months.

U.S. foreign direct investment in the EU amounts to $2.7 trillion, with some $587.9 billion of that flowing to the U.K., according to a 2016 study by Johns Hopkins University.

For its part, Colorado sent $222 million worth of goods to the U.K. in 2015, according to the Johns Hopkins study.

"It's not like they're going to stop trading or consuming," Jabusch said, predicting a trade agreement similar to those the EU has with Switzerland and Canada, which is "more or less a free trade agreement."

Joseph Jupille, associate professor of political science at The University of Colorado, takes a bleaker view.

He believes the world economy is in for a period of extended volatility due to the elements of surprise presented by this decision.

"Were in uncharted waters here," he said. "The EU has never taken a step backwards until now. It is going to take Europe some time to get back on their feet after today's blow."

Though trade between the U.S. and U.K. makes up just 0.5 percent of U.S. economic activity, instability in Europe could have major impacts. The nation's economic relationship with the EU is second only to trade with Canada, and is larger than China.

"It's a dangerous unstable world out there, and the United States' best friend in this world is Europe, who is now weaker," Jupille added.

The most potentially far-reaching and long-term implications are likely to stem around new immigration policies.

Susan Kent, CU professor of history, traces Britain's decision to break with the EU back to the county's debates over immigration policy in the 1940s and the end of the British Empire.

"The British Nationality Act of 1948 was an effort to bring subjects of the empire to Britain in order to integrate all of the peoples of the empire," Kent explained. This move towards integration spawned a number of nationalist movements in the past 50 years that are concerned with the safety and control the U.K. has over its borders."

British political parties like the British National Front and Britain First pushed hard for the exit, citing a need for more control over their borders as an influx of Syrian refugees and other migrants streams into the county.

"As I see it, the Brexit was a result of the playing up of immigration rumors and islamophobia," Kent said.

On the economic front, the impacts of limited immigration can be dire, Jabusch said.

"Economies grow in the long-term based on population growth or immigration. You need people to keep things moving."

Places with rapidly aging populations, such as Japan, have stagnating economies as retirees withdraw money from the markets. Fewer young people to replace the cash flowing out creates imbalance.

"The U.K. could suffer from the same thing if they flat-out refuse immigration," he said. "Ten years in, it could be a big deal and 20 years in, it could be a huge deal."