Trustnet Magazine Issue 10 September 2015 | Page 6

MONEY

BREXIT

T
Phil Scott looks at the implications for investors if a
referendum on Britain’s membership of the EU produces an
unexpected result

he countdown has finally
kicked off in earnest. As
promised in the Conservative
manifesto, Britons will be
given the chance in the coming
years to decide on whether they
want to stay in the European Union
(EU) or exit the partnership and
with it potentially unravel four
decades of integration.
David Cameron has earmarked
June 2016 as the potential time
for the referendum. For many, the
implications of a “Brexit”, given the
UK’s economic place in the world,
are profound.
US president Barack Obama has
been quick to wade into the debate
and declare his position. In a recent
interview, he warned Britain’s
position in the union was essential
for business and international
security. 
“Having the UK in the EU gives us
much greater confidence about the
strength of the transatlantic union,”
asserted the leader of the free world.
“We want to make sure that the
United Kingdom continues to have
that influence.”

A LEANER EU

Many investors echo his sentiment.
In a survey carried out by NN
Investment Partners, 75 per cent
of resp ondents said the impact of
leaving would be negative, while 18
per cent said it would be extremely
so. However, 20 per cent of
respondents said a Brexit was likely,
although 48 per cent couldn’t see it
happening.
For his part, Cameron wants to
stay in, but he is campaigning for
a leaner EU focused on trade and
economic co-operation rather than
political and fiscal union.

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EUROPHILES AND
SCEPTICS ALIKE HAVE
BEEN AT LOGGERHEADS OVER THE PROS
AND CONS OF BEING A
MEMBER

LOGGER-HEADS

However, europhiles and sceptics
alike have been at logger-heads
over the pros and cons of being a
member. The “for” and “against”
arguments have been well
documented. Brexit supporters point
to the EU’s failures on monetary
union and assert that the UK would
be a more nimble state that could
easily increase trade with the rest
of the world while simultaneously
maintaining a free-trade deal, as well
as access to the single market.
Opponents, on the other hand,
primarily point to the economic
risks of leaving, the loss of access
to the single market and resultant
disruption to jobs, business,
investment and trade, not to
mention political clout.
If polls are to be believed, fears
over a Brexit are unfounded –
sentiment towards the union
appears to be at its highest for some
time. In Ipsos MORI’s latest Political
Monitor, three in five respondents,
or 61 per cent, said they would
choose to stay in and only 27 per
cent said they would opt to leave.
However, recent events have
dramatically underlined the point
that polls and pollsters’ opinions
should be taken with a pinch of
salt. May’s general election, which

saw the Conservatives trounce
the opposition, sent shockwaves
through the country as pundits had
the Tories and Labour being neck
and neck.

MARKET ANGST

If history repeats itself and
Britain cuts its EU position, the
ramifications could be huge. Howard
Archer, chief UK and European
economist at IHS Global Insight,
believes it would have “substantial
political, operational and economic
impacts both on the UK and the
EU”. The general feeling among
those who wish to stay in is that a
Brexit would spur a dramatic rise in
financial market volatility, including
downward pressure on UK equities,
bond prices and the pound.
It seems market angst over the
referendum, and the predictability
of the result, will only rise as we
approach decision day. Britain
recently illustrated how uncertainty
influences its investment decisions.
Data from fund management trade
body the Investment Association
shows money flooded out of UK
equity funds to the tune of more
than £1.8bn during March and April
this year, as uneasiness took hold in
the run-up to the general election.
Axa Wealth’s head of investing
Adrian Lowcock says: “If a Brexit
comes as a big surprise, then we are
likely to see a larger sell-off in equity
markets; if it is expected, then the
impact may be more significant
ahead of the referendum.”

“PROFOUND UNCERTAINTY”
However, if the UK actually leaves,
the impact is likely to be much
more serious and drawn out. “That
would mean a significant change

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