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. 4 trustnetdirect.com trustnetdirect.com 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 5