What Can We Expect Following the Brexit Vote?
Regardless of how the Brexit vote plays out later this week, Britain’s referendum on membership in the European Union (EU) has given the global markets one more thing to worry about. The bookies (and some polls) are favoring staying put, but most reports still have it too close to call.
What happens if Britain votes to leave? Apart from the logistical nightmare, a vote to leave would further call into question the whole EU adventure. No country has ever voted to leave the bloc before and the economic effects for both Britain and the EU as a whole could be severe. Economic logic points to Britain remaining in the EU, but the debate that’s unfolded has often focused on issues far beyond those debated by economists—Britain’s role in the ongoing migrant crisis, the country’s sovereignty and security, and its competitiveness in the global marketplace, to name three.
If Britain were to leave, investors would expect to see an accelerated flight to safe haven assets, with U.S. Treasurys high on that list. Liquid alternative strategies designed to reduce market volatility while allowing investors to maintain some exposure to potential upside are also likely to be front of mind for many. A realignment of the relevant currencies (Pound, Euro & Dollar) is another potential outcome, although as recent years and a lot of our own research at IndexIQ have shown, predicting currency moves is a road one travels down at their own risk.
And if Britain votes to stay? In the short-term, such a resolution could spur some positive market sentiment, particularly for European stocks, which have struggled in recent months amidst this debate. Still, we think the volatility will remain. The very fact that the Brexit conversation has reached this point will leave many questioning the long-term viability of the European Union and watching for any signs of unease among other major members of the bloc.
Also worth noting is that the Brexit campaign may embolden Scottish nationalists, who could once again seek a referendum on independence. Such a vote was held in 2014, with 55% ultimately voting in favor of the status quo, but 2014 seems like a very long time ago these days.
If there is one thing on which we can be certain, it’s uncertainty. The “year of volatility” will proceed apace.
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