5 Weeks Remain

Just over a month remains before the UK’s EU referendum. With uncertainty appearing to wane despite polls suggesting it’s still as close as ever, we take another look at how markets are holding up amid all this, and how you can either take advantage of the opportunities, hedge against the risks or both!

The Pound

Perhaps the most impacted object in all this. Sterling remains under fire with the Bank of England not helping matters by overstepping the fine line that separates Central Bank independence from Politics. Governor Mark Carney has said a recession is on the cards in the event of a ‘Brexit’ which would no doubt be accompanied by a further plunge in the Pound – perhaps another 20% according to the NIESR, which would make things like business, travel and a host of others more expensive for UK citizens. With such an outlook arguably self-fulfilling, will the message nonetheless be enough to secure a landslide ‘stay’ vote and robust relief rally?

What Economic Data Can Tell You

The data suggests uncertainty may be hindering business in the run up to the referendum by way of delays in major business decisions. An exit would bring added uncertainty, which business doesn’t like. Yet even a stay vote will not herald an immediate return to how things were 6 months ago – granted, even if they did, that wouldn’t be great considering how things were 6 months ago!

What of the UK 100 index?

While the UK 100 is arguably more sensitive to moves in the US Dollar than it is to those in the Pound, that doesn’t negate the fact that it is exposed to the Brexit debate. Financials and retail stocks are already feeling the pinch and stand to feel it even more if the UK does vote to leave the EU, via reduced access to European markets and increased costs (in the case of clothing and electrical goods retailers) of imported goods stemming from a weaker currency. The wider market too is highly exposed with the traditionally being a much more UK-focused index.

House builders comprise one specific sector that’s been very quick to move around, tracking the swings in sentiment as investors weigh up the internationally driven London market with that covering the rest of the UK.

Travel stocks are sure to be bruised with Ryanair’s O’Leary, formerly a staunch Eurosceptic, now warning of higher prices if we do vote to leave the EU.

Financials are of course in the spotlight given their mixed exposure to the UK, Europe and further afield. We address 2 stocks from each sector below.