Very few managed to profit out of Britain's shock exit from the European Union, but one man who shorted the pound prior to the dramatic plunge says the drawn out pain of its economic problems is going to be rougher than anyone expects.
"You never know what people are going to tick in the box on the day," said Lukas Daalder, chief investment officer for Robeco Investment Solutions, of the hedge decision that managed to avoid the harsh smack of the Brexit shock.
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Warning over cost of 'hard' Brexit
The UK could lose up to 66 billion pounds a year under a "hard Brexit", according to newspaper reports, while sterling has crashed to near 31-year lows.
"The general view was that Brexit wouldn't happen, and that was our view too. But we thought, if it does happen our whole portfolio is going to get hit. So we shorted the pound as a hedge," he said, while in Sydney this week.
The day after Brexit was the worst day for sterling since the currency floated in the early 1970s and thanks to Mr Daalder's call, Robeco managed to scoop up a very healthy offset.
"We were the odd ones out because we had this hedge in place, and it turned out very well," said Mr Daalder, whose fund has âĴ269 billion ($393 billion) under management). "Even The Economist wrote about it. But now it is extremely crowded and we've taken our chips off the table."
The pound's plunge
In the past week, the pound has continued to plummet and is now one of the most shorted trades on the global currency market. Prime Minister Theresa May's comments last week that she will trigger Britain's complete exit from the single market by no later than March next year pushed the pound to 31-year lows against the greenback of below $US1.20.
France's President Francois Hollande addressed a dinner last Thursday night and emphasised the mammoth task Britain faced extracting itself from the eurozone.
"There must be a threat, there must be a risk, there must be a price, otherwise we will be in negotiations that will not end well and, inevitably, will have economic and human consequences," he said, adding that he believed Britain had voted for a "hard Brexit".
"The French will expressly make sure the British suffer," said Mr Daalder, who is based in the Netherlands. "There is no upside for Europe to let the British go out easy. There are a lot of obligations and agreements in place, one can't just walk away from them. The idea they will just leave and start from scratch, I do not see that happening."
In the past month alone, the pound has fallen a further 6.4 per cent prompting suggestions it may reach parity with both the greenback and the euro. Following Friday's dramatic flash crash during which the currency within minutes slumped more than 6 per cent to $US1.1841 before recovering just as swiftly, JPMorgan, ING Group and Julius Baer Group have reduced their year-end forecasts.
"At the moment, the British can easily finance their huge current account deficit," Mr Daalder said. "But given the uncertainty now, capital inflows will start to look uncertain and over the longer term, the pound certainly looks to keep heading down."
As it stands, Britain's current account deficit stands at 6 per cent of its GDP.
Sterling's second coming
But not everyone is gloomy on the outlook for the British. Looking three to five years from now, Saxo's Kay Van-Petersen said Britain will be in a much better place than the eurozone.
"It's my highest conviction feeling from a structural perspective," said Mr Van-Petersen, global macro strategist at Saxo Bank who was also in Sydney this week. "They're going to be more flexible and they won't have to fund things they don't believe in."
While the eurozone struggles with its own structural issues and banking crises, the FTSE 100 has managed to reach record highs during this period of Brexit chaos and Mr Van-Petersen insists that shows there are plenty of opportunities to be long Britain.
"I totally missed the FTSE100 and if you'd be in it, it would have been one of the biggest rock and roll trades of a decade," he said. "But going long UK assets is going to be one of the best trades ever. And where is the maximum pain, maximum pessimism? The euro/sterling cross."