Within equity markets, different sectors would be impacted to varying degrees. Brexit is likely to have the biggest impact on banks, with retail, other financials, insurance and property hit to a lesser extent. Utilities and large international companies are unlikely to encounter big moves, assuming Scoxit does not immediately follow Brexit.
While the property market faces the potential loss of foreign buyers, a weaker pound could counteract this threat and attract more interest. Should the government decide to change the rules surrounding property investment by non-UK residents, we could see a decrease in investment. At least the sticky nature of the property market would prevent a quick withdrawal of investment by those already invested.
Following in the UK’s footsteps
Potentially, the most pertinent issue is the risk that other countries would follow in the footsteps of the UK’s decision to leave the EU. Scotland’s First Minister Nicola Sturgeon could rally the troops and have a “re-referendum” to untie Scotland from the UK and get back into Europe, though would the Europeans want to take on an economy so dependent upon oil when oil remains an unknown quantity?
Might we see Brexit alongside other populist parties gaining traction throughout Europe? Britain, some argue, could be seen as a safe haven amid a disintegrating Europe. This would encourage businesses to stay or indeed move across to the UK — Britain’s parting blow to the EU. Surely then, the wisest move for the EU would be to make the process of Britain’s exit as challenging as possible to deter others from following suit.
Bottom line
Overall, it is clear that a post-Brexit world would have its challenges. With no similar events to review in history, it is not possible to know what will happen on day one. However, one thing is certain: “All the world’s a stage and all the men and women merely players. They have their exits and their entrances; And one man in his time plays many parts.” How the world reacts to Brexit if in fact Britain decides to leave the EU, only time will tell.
Mark Burgess is chief investment officer, EMEA, and global head of equities at Columbia Threadneedle Investments.