Countdown to Brexit Referendum – How will it impact the markets?
As we discussed in a previous article, the United Kingdom will hold a referendum on June 23rd, 2016 to decide if the country will stay in or leave the European Union. This will be the country’s most important vote in half a century. The possible British exit is referred to as BREXIT.
Although surveys measuring voters’ intentions suggested growing levels of support for Brexit, a lot can change over the closing stages. Polls made during the last weekend show the UK is more likely to vote to remain in the European Union. A recently published survey states that 45% of voters back the UK staying in the EU, compared to 42% who want leaving. 13% of the voters are still uncertain, they will decide whether the UK will stay in or leave.
How would Brexit influence Britain’s economy?
Analysts warned that Brexit could be dangerous for Britain. The country would have worse trade deals, the rate of unemployment would increase and incomes might fall. Most British companies want to stay in the EU.
10 Nobel prize-winning economists warned of long-term damages after Brexit: “Brexit would create major uncertainty about Britain’s alternative future trading arrangements, both with the rest of Europe and with important markets like the USA, Canada and China,” they wrote.
Celebrities also joined them: for example, football-star David Beckham has said he backs a vote to remain in the EU. He wants his children to grow up “facing the problems of the world together and not alone”.
How would Brexit impact the markets?
If the UK leaves the European Union, there might be severe moves on the markets. Britain’s withdrawal process from the EU can be long and painful. The British Pound and the Euro may weaken significantly. Britain can expect 15 – 20% depreciation of the GBP against its trading partners. The world’s most famous currency speculator, George Soros has warned that leaving the EU would trigger a damaging fall for the British pound.
In uncertain times, investors often seek for “safe haven” assets, such as gold. Furthermore, the Japanese Yen, the US dollar and the Swiss Franc will make strong gains, when GBP and EUR will lose.
Prices of British and European stocks would decrease due to the exit. Especially, banking stocks and multinational corporations would suffer the hardest hit. This move can impact all stock exchanges worldwide. A prolonged period of uncertainty would also mean a drop in bond yields.
It is possible that the Bank of England would increase interest rates to stem the fall in GBP. This would rise the cost of borrowing, and would hinder the growth of British companies.
On the other hand, if the UK remains in the EU, the British Pound and the Euro will gain strength again, while JPY, USD and CHF may weaken. Besides, stock prices and bond yields may increase.
In summary, investors should keep an eye on the referendum and adjust their trading activities accordingly. Such a big event brings a lot of trading opportunities.