Tobacco Stocks Are Booming After Brexit Vote

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Guy Bentley Research Associate, Reason Foundation
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Blue chip tobacco stocks are performing extremely well in the wake of the United Kingdom’s decision to leave the European Union.

Markets widely expected a vote to remain in the EU and were sent into a tailspin after the British people decided to Brexit.

The pound plummeted and the FTSE 100 and FTSE 250 lost ground in Monday trading. In light of an uncertain political and economic future, investors are fleeing to safe-haven investments — prominent among them are tobacco and gold.

Stocks in America’s tobacco giants climbed Friday, with Altria Group almost reaching an all-time high of $67.97. “With Brexit potentially delaying an (interest) rate hike in the U.S., this move likely favors our higher-yielding names, and in particular U.S. tobacco (RAI and MO),” said Cowen & Co analysts, according to Reuters.

“We expect that investors will view global tobacco as a relatively safe haven in a risk-off environment,” they continued. During Monday trading, Philip Morris International edged up 0.5 percent, Altria rose 1.36 percent and Reynolds American enjoyed a 1.40 percent gain.

Gold prices are also on the rise. “There’s a lot of uncertainty around, and it’s not surprising there’s been a pickup in safe-haven buying,” William Adams, head of research at Fastmarkets told the Wall Street Journal. “Until there’s less uncertainty I think bullion prices will be supportive.”

In a further blow to markets, Standard & Poor’s stripped the U.K. of its AAA credit rating, downgrading it to AA Monday. The ratings agency said uncertainty surrounding the U.K.’s future outside the EU was the main reason for the downgrade.

“This outcome is a seminal event, and will lead to a less predictable, stable, and effective policy framework in the UK,” said S&P. (RELATED: George Soros Warns EU Collapse ‘Practically Irreversible’ After Brexit Vote)

The agency cited the large majorities that voted to remain in the EU in Northern Ireland and Scotland as creating “wider constitutional issues for the country as a whole.” S&P rated the U.K.’s credit outlook as “negative.”

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