Voting takes place a week from today in the UK on the question of whether the country should remain in the EU or leave.
If the vote is in favor of Brexit, the government will presumably inform Brussels of its intention to depart, which will start the clock on a two-year waiting period before Britain can officially withdraw.
Recent polls have begun to show for the first time that a majority of citizens favor severing ties with the EU. This is the reason for recent weakness in London stocks.
–polls on issues like this are notoriously unreliable. Some are either tacitly or overtly political, with question design (on the order of “You do favor leaving the EU, don’t you?”) slanted to one side or the other. As far as internet surveys go, it’s impossible to know whether the respondents are a representative sample of likely voters. During in-person, and especially during phone, interviews, respondents often tend to be less than truthful, giving instead what they perceive to be expected responses
–Pro voters, who seem to think that exiting the EU will return Britain to its eighteenth-century glory, are delusional
–the two-year waiting period gives both sides time to renegotiate trade agreements (almost half of Britain’s exports are to the rest of the EU). It’s reasonable, I think, to assume that new agreements will be less favorable than the current ones. But it’s hard to know whether they’ll make a significant practical difference
–non-EU multinationals who have located operating divisions and general headquarters in the UK because of its being inside the EU will presumably begin to shift operations elsewhere (Ireland?)
–as far as portfolio investors like us are concerned, the main direct economic effect of Britain leaving the union will likely be the weakening of the currency that’s happening now. So far there has been no counterbalancing positive movement by stocks where the costs incurred by the underlying companies are primarily in sterling but where revenues are in euros or dollars. Such firms, however, should be star performers if the vote is for Brexit and as the currency stabilizes.
My conclusion: prepare to buy multinationals traded in London on a further selloff that will likely occur if the vote next week is for Brexit.