Are investors underestimating the risks of the Scottish independence referendum?
Bill O’Neill, head of the UK investment office at UBS Wealth Management, says Yes.
So far, the independence debate has been black or white: union or separation.
Yes, the market is anticipating a rejection, which would see a modestly positive reaction in sterling, gilts and equities.
But investors need to consider the wider picture presented by devolution.
We expect that, although independence will be rejected, the Yes side will win a significant proportion of the vote. A No result will not be a vote for no change.
The large bloc of votes in favour of independence will provide a mandate for more devolution of powers over time. This could result in new power for Holyrood to set its own distinctive tax regime.
Divergent fiscal policy could see different corporate and capital taxes and a commitment to reduce business taxes relative to the rest of the UK.
Market interest will then centre on the impact of these emerging differential tax rates on Scottish-linked equities. Smart investors should prepare for the grey territory of devolution.
Jeremy Cook, chief economist at World First, says No.
Bluntly, markets are not underestimating the risks of the upcoming Scottish independence referendum.
Opinion polls asking the exact question that will be put to voters on 18 September – “Should Scotland be an independent country?” – have consistently shown the No camp on top. The most recent poll showed the unionists beating the nationalists by 46 per cent to 40 per cent, with 14 per cent undecided.
The bookies agree. A brief look at a host of high street bookies sees the implied probability of a No vote at around 85 per cent.
As I was always told, you never see a thin bookmaker.
Risks obviously exist should the vote go the way of Alex Salmond, but we believe the warnings of a collapse in confidence in UK assets are overdone. As with any election, we can expect to see a narrowing of the gap going into polling day.
But we foresee a risk rally on 19 September, as investors finally forget about what is little more than a political sideshow.