In our five-part series on Brexit, we look at the financial implications of ‘Britin’ and ‘Brexit’. See ‘In a nutshell’ and ‘Pre- 23 June Referendum: 2015 Grexit episode suggests to stay hedged until ‘B’-Day’ for first two weeks of analysis….
In the case of the Scottish independence referendum held in 2014, when elderly voters concerned about social security and the young concerned about employment tilted to vote in favour of Scotland remaining part of the UK, the end result was that concerns over national identity were side-lined for securing broader economic prosperity. Given the hard fought economic gains by Britain over the last several years, coupled with the fact that the EU remains the UK’s largest trading block (a fact which is compelling UK businesses to overwhelmingly support “Britin”), similar voting behaviour looks likely.
In this context, British voters would vote with their pockets, preserving the status quo of that of an imperfect union with continental Europe. With political and economic uncertainty removed, the “Britin” result should restore confidence in sterling assets and also provide a boost in the euro. Credit conditions should continue to ease and in the process keep the domestic demand recovery of Europe alive.
European small cap equities are seen as likely to benefit the most, alongside UK mid and small-cap equities that have a relative large exposure to Europe.