Market Commentary | Can we not talk about Brexit?

Short answer – no. Long answer – we ‘could’, but the rest of the world is still talking about it, almost exclusively. So here goes.

The Leave and Remain camps began their final bout of campaigning as the UK approaches the Brexit referendum. Voting is set for tomorrow and the results will start pouring in Friday morning. This week saw a renewal in sentiment in favour of the Remain vote after it seemed to be losing ground to the Leave camp. Still, many surveys are sending out conflicting signals as to who’s ahead. Betting companies seem to be less uncertain – putting the chance of a UK exit at around 24%.

Heavyweight central bankers Janet Yellen and Mario Draghi said in separate statement that the UK voting to leave the EU could have severe negative repercussions on the US, EU and global economy in general. The Federal Reserve Chair admitted it would impact the assessment of future monetary policy in the US, while the ECB President said the ECB “stands ready” to act if the referendum result causes turmoil in the markets. The International Monetary Fund said last week it could cause a potential credit squeeze brought about by a shortage of liquidity. Billionaire investor George Soros has warned of a slump in the pound, of a magnitude of at least 10%.

Stock markets were fairly steady after making very good progress on Monday. European markets chalked up some gains after Asia was mostly positive. Most major sovereign bonds finished the day slightly lower, with the UK’s 10-year gilt retreating the most. The yield on the British benchmark paper stood at almost 1.29%, 5 basis points higher on the day. The pound sterling hovered around the yearly highs of 1.4670 after hitting a 2016 high against the US dollar on Monday. Wall Street also managed to grind out some gains.

Tencent buys Supercell

China's biggest gaming group Tencent was up over 1.2% after it announced it will buy a majority stake in Finland's Supercell, makers of the popular 'Clash of the Clans' mobile game, from SoftBank. The deal, valued at roughly $8.6 billion, will expand Tencent's foreign interests overseas. The Chinese video game and social network group still relies mainly on local sources of revenue despite holding stakes in studios like Epic Games and Riot Games.

Tencent will acquire about 84.3% of Supercell, including all of SoftBank's 72.2% stake in what will mark the biggest ever merger and acquisition deal in the gaming industry. Tencent will buy the stake through a wholly-owned consortium will open up to co-investors, though Tencent expects to maintain a 50% voting interest.

Supercell employs 180 people, had pre-tax profit of €880 million euros last year, and revenues which put it into the list of largest Finnish companies measured by earnings. Clash of Clans was the world's top grossing mobile game last year. It is a war strategy game in which players build fortresses, form clans and battle it out with other clans in a Medieval-style fantasy world. Tencent said it expected the Supercell deal to close in the third quarter of 2016. The Chinese company made 32 billion yuan ($4.86 billion) revenues in the first three months of 2016, of which over half came from gaming.

Seller SoftBank said the deal would yield a return of around 2.9 times its original investment. It expects to book a 600 billion yen ($5.74 billion) pre-tax profit this financial year from the sale, it said. In addition to the Supercell deal, the Japanese media and telecoms company said earlier this month it would sell $10 billion worth of shares in Chinese e-commerce giant Alibaba Group to cut debt, as well as a decision to sell its stake in GungHo Online Entertainment back to the mobile game maker for 73 billion yen.