With the Bank of England warning of a sharp fall in sterling, would leaving the EU be a buying opportunity?
Jason Hollands, managing director of Tilney Bestinvest, says Yes.
A Leave vote will likely lead to a knee-jerk reaction in the markets, led by a sharp slide in sterling. However, far from hitting the panic button, I would see an indiscriminate slide in UK equities on the back of a Leave vote as a potential buying opportunity. While Brexit will undoubtedly create further uncertainties for certain businesses, and for others will involve restructuring costs, it is important not to lose sight of the fact that the UK equity market and the domestic economy are not one and the same thing. Indeed, over 70 per cent of the earnings of FTSE 100 companies are derived outside of the UK, typically in dollars. So when the dust has settled, valuations will ultimately reflect the nature and earnings outlook for these businesses, not the emotion of the herd in the immediate aftermath of a political earthquake. Indeed, the currency impact of revenues generated in dollars getting translated back into sterling reported profits and dividends could provide a quite helpful near-term boost for UK-based investors.
Jordan Hiscott, chief trader at ayondo, says No.
This is a once-in-a-generation event. The implications are gargantuan, affecting confidence and stability in a system that has been in place since the Single European Act was signed in 1987. Many UK listed companies are consequently fundamentally entwined with EU markets and, over the course of the next month, there could be a dramatic change in how they conduct business. Leaving the EU will also likely affect regulation, movement of employees and profitability. While volatility may be a short-term concern, should it be a Leave vote, the fact is that a financial unknown is a catalyst for instability. There will always be opportunities with the right approach, but an exit will certainly not create an influx of buying opportunities. Consideration must be given now to positions in assets which have high correlations to the outcome of the vote, so that, when the time comes, knee-jerk decisions are left to one side. Short or long term, whether other countries use the impetus to vote to leave must also remain a consideration.