Australia is roughly 16,893km away from the UK. The world is 40,075km in circumference. When you’re talking about Australia and the UK, they really are on the complete opposite sides of the world.
We should know. We regularly travel between the UK and Australia. It’s a hefty flight. But at the end of it all, what’s 24 hours in transit? Just a day. No big problem.
People tend to think that because of the distance between the two, they often don’t have that much influence over one another. But let’s also not forget Australia is a ‘British Colony’.
Whether you like it or not, we are inherently British. We carry their flag on our flag. Our head of state is their Queen. Heck, she’s even on our physical money.
But those aren’t the only influences the British still have over Australia.
Take a look at the GDP (purchasing power parity) of all the countries in the world. ‘Purchasing power parity’ takes into account the relative cost of local goods and services, and inflation. That means it’s a more reliable ranking of GDP when looking at different countries.
The UK ranks (according to IMF forecasts for 2017) as the 9th biggest economy. Their GDP (PPP) is forecast to hit $2.905 trillion. Meanwhile down in 19th is Australia with GDP (PPP) forecast to hit $1.251 trillion.
Yes, the UK economy is more than 2.3 times bigger than Australia. That gives the motherland some serious financial pull not just over Australia, but over the world.
And right now the UK’s financial clout in the future is under a cloud. As you’re no doubt aware, they’re in the midst of ‘Brexit negotiations’ with the European Union (EU).
Part of this difficult divorce is figuring out what to do with the ‘joint account’. That means sorting out how to financially separate from each other. And to do it in an organised and safe way.
It doesn’t get a lot of coverage. But this is massive change. They have to figure out how to let financial companies operate in a post-Brexit world.
We’re not just talking about a dozen or so major banks. We’re talking about 30,000 finance professionals that may exit the UK. We’re talking about splitting up laws that allow for advice and services across UK and EU borders.
According to the Independent, we’re talking about £1.6 trillion of assets shifting from the UK back to Europe.
It is massive. And it’s a problem.
The current arrangement between the UK and the EU has a number of laws and regulations. One of these is known as the Markets in Financial Instruments Directive (MiFID).
MiFID enables transparency and sets out disclosure for financial markets. It’s regulatory oversight for the UK and the EU. A bit like a financial services sheriff.
Needless to say, it’s complex and convoluted. But it’s also a necessary part of providing financial services in the UK and EU.
MiFID as it stands now started in 2007. Great timing…
MiFID has been in dire need of an update, because of the GFC and now Brexit. And the update is here – welcome to the party, MiFID II.
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The impact is felt globally
MiFID II is designed to further protect consumers. It’s a checkpoint for financial businesses. It’s to make sure they’re doing the right things by their clients.
It’s wide reaching and touches any business involved in financial instruments. Financial instruments are stocks and bonds and managed funds, etc.
It’s so wide reaching that the impact of MiFID II is now being felt in Australia.
Australia might be small. But we still have a number of global financial companies operating domestically. And these global players have to deal with MiFID II.
That means restructuring their UK and EU business. Now they have to deal with MiFID II across all their businesses.
Now you might wonder why this has anything to do with the price of fish in Australia.
Well according to the Australian Financial Review ‘Street Talk’ column,
‘The corporate regulator wants to impose tougher sell-side research guidelines that will impact each stage of an ASX listing, including pre-solicitation, vetting, pitching and the post-mandate period and preparation of investor education reports.
‘It comes as global firms consider their response to the EU’s Markets in Financial Instruments Directive (known as Mifid II), which will see fees for research unbundled from trading, execution and other functions.’
The article goes on to say the Stockbrokers and Financial Advisers Association of Australia have a few problems with it all.
Not least being that, ‘the [new MiFID II] rules have the potential to further stifle the already limited research of small and mid tier stocks in Australia.’
In other words these brokers won’t make enough money researching small-cap stocks.
It’s a shame for Aussie investors. Ultimately it means less total information. But we’re more than happy to see big brokers leave the small-cap research game. We think most of their research is biased anyway. And that’s exactly why the rules are changing.
Looking for quality Aussie small-cap stock research?
The truth is, we’re happy about this. You should be getting small-cap stock research and advice from independent professionals. In other words, a subscription to Australian Small-Cap Investigator.
The mainstream research game is full of conflict, influence and bias. And no other major financial institution provides the level of insight into small-cap ASX listed stocks like we do.
That might sound like we’re blowing our own trumpet a bit. And maybe we are. But we laugh at brokers kicking off in protest of more transparent research fees.
No company pays us to cover a stock. We don’t puff a stock to generate higher fees. Our sole revenue is from subscribers paying for our market-leading research.
We provide the detailed research into any ASX listed small-cap stock we like. The only criteria is we must think it has potential to return investors multiple times their investment. Quite simply, if you want independent small-cap research then just sign up here.
Of course small-cap stocks are high risk. No doubt about that. And you should understand the risks before investing in them. As we always say to our readers, never invest money you couldn’t afford to lose. But that’s the nature of speculations. And while some losses are part of the small-cap game, the gains on offer have the potential to blow those losses out of the water.
If you’re willing to step in and invest in small-cap ASX listed stocks, we think you’ll be in for the ride of your life.
Editor, Australian Small-Cap Investigator