On June 23, Britain will vote on whether to leave the EU. And so far, polls are showing a tightening race ahead of that referendum, says a CIBC research note by CIBC’s chief economist Avery Shenfeld and senior economist Andrew Grantham.
The economists concede that “a British exit from the EU would stir up new uncertainties, both for the U.K. and the Eurozone, that a decision to remain would avoid. So we can understand why [the] Sterling has weakened this year.”
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Still, they add, “We would be buyers of [the] Sterling and other affected assets ahead of the vote. Should the ‘remain’ side win, [the] Sterling would likely see a quick rebound, just as it did after the Scottish independence referendum.” Investors should also be aware that we could see some underperformance of U.K. equities versus other markets in Europe, but that any weakness could be “reversed on a ‘stay’ vote.”
If Britain does exit, that would be a negative for its currency, given possible risks to British trade, say Shenfeld and Grantham. But, looking at the long-term impact of such a move, “A Brexit need not be the slamming of economic doors to Europe that many assume. History, trade patterns and other factors suggest that the most likely medium-term outcome of a ‘leave’ victory would be fairly minimal in terms of actual disruptions to trade, markets or capital flows.”
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