Simon Molica: The Brexit debate really seems to be heating up at the moment, leading up into the referendum on the 23rd of June. And to try and gauge the outcome is a couple of things we can look at and one is the opinion polls. And the most recent polls I have seen suggest about 50-50. So not really telling you that much and actually you can question how accurate those polls can be. We only need to look at the last general elections to tell that.
If we look at the bookmakers they are more recently, more positive and actually remaining in with a likelihood of about 75%. And it has certainly increased following President Obama’s comments recently on the implications of trade.
So just taking a quick look at what a Brexit could actually mean. Well, there is certainly a lot of talk about growth and in a Brexit scenario growth could be slower and that could affect GDP numbers. Also sterling, I think sterling would be weaker in that environment, but then we have already had some weakness in sterling already this year. Pricing that in although a recent bit of a bounce up there. So really for me the implications really are the increased uncertainty and volatility and no one really likes that in a world. That could go on for some time.
There is an allowable window of about two years when agreement can reach place and actually if all parties agree that can even be extended further out. So there really is a time period where there could be quite a lot of uncertainty which clearly the world won’t like.
Now if we actually look at what could happen to the stock market. There is a debate that actually the stock market wouldn’t be influenced that much because it’s internationally orientated I think potentially that’s a bit short sighted, particularly if it’s affecting the underlying economy and the currency as well.
But just for a moment let’s think about what the fund managers are doing. The fund managers we’ve been speaking to recently, the guys actually manage U.K. equities; they are not really dramatically shifting their portfolios at the moment. Potentially at the margin they may be going more exporting orientated because of it. But really this is seen as a binary event and something people can’t really plan for with a lot of uncertainty. I really think that the changes only would come if a Brexit was to be voted, that we actually leave the EU.
