Brexit Referendum

In a little over a week British voters will decide whether or not to stay in the European Union.  There is a lot of media attention around the event and investors are wondering what it will mean for Europe and stocks.

Market fear levels are already high.  The fear here may not be so much Britain’s potential exit.  If they do vote to leave an adjustment period could be bumpy but it’s not likely to be disastrous.  An exit vote would trigger a two-year period where negotiations would take place allowing markets to adjust.  The European Union policy makers real fear may be the potential for other countries to consider an exit.

BrexitAlthough history is limited in the area of independence votes, back in 2014 the Scottish independence vote failed to win enough support.  Voters generally prefer the status quo which may provide the stay camp a slight edge when ballots are finally cast.

In terms of the economic impact, Britain has strong trade relationships outside of Europe.  Their geographical proximity to the region suggest they will be able to maintain their trade agreements within the region.  Since Britain is not part of the Eurozone (they are part of the European Union) they do not use the Euro currency.  Britain pays around $10B a year for their membership in the European Union.

Whatever the outcome it will likely have less impact outside of the region. European stocks have already experienced more volatility than U.S. stocks and have under-performed U.S. markets since the 2009 recovery.

Once the outcome is known it will fall by the wayside which could end up boosting stocks.  The vote takes place on June 23rd.

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