Brokerages expect UK to remain in EU

Here is a quick compilation of what the brokerages expect from the Brexit polls, and its impact on financial markets

On June 23 Britain will vote whether to stay in the European Union (EU) or not. Over the past few weeks, the possibility of Britain leaving the EU (Brexit) has stirred global financial markets with leading global brokerages and research houses highlighting implications for currency, debt and equity markets.

Here is a quick compilation of what the brokerages expect from the Brexit polls, and its impact on global financial markets.

Citi Research

We maintain our probability of Brexit at 30-40 %, but push this to the top of this range barring a major "wild card" risk event or shift in polls. In our view, the economic and financial damage in the remaining EU countries would in all likelihood be mild, and in any case far smaller than in the UK.

Diverting foreign direct investment may even have some positive effects However, Brexit would set a dangerous precedent and could trigger chain reactions. Europe's global "soft power" would be diminished in unstable times, to the detriment of both the EU and the UK.

Morgan Stanley

The upcoming EU referendum poses a binary risk for emerging markets fixed income and forex. Apart from the direct impact of Brexit on the currencies and rates of Central and Eastern European Countries (CEE) countries with trade and financial linkages with the UK, we expect that risk-aversion will be the main channel through which the rest of EM will be impacted, with the largest vulnerability among some of the high-beta countries.

In terms of asset classes, forex (FX) is most exposed, followed by local rates, and external debt to a lesser degree. In terms of regional exposure, Central & Eastern Europe, Middle East and Africa (CEEMEA) is most at risk, followed by some of the LatAm countries.

CLSA

GREED & fear is of the view that the "Remain" campaign is likely to win the coming referendum, and perhaps win quite comfortably.

Daiwa Capital Markets

We still think there is a stronger chance of the UK staying in the EU and investors' risk appetite should improve thereafter. Hardest hit in case of an exit, of course, would be UK financial assets. And while it may be expected that after the initial knee-jerk response, some of the risk-off sentiment would quickly dissipate in most other markets, the likely economic and political fallout in the UK would affect asset prices there for a considerable period. From a growth perspective a vote to 'Leave' could be expected to trigger recession.

Ashmore Investment Management

The polls show that voters want to leave the EU, but the bookmakers still believe that the "Remain" camp will win, because voters tend to vote more conservatively than what they say. If you look at the difference between what the polls said and how people voted in the independence referenda in both Scotland and Quebec you see this effect. Gun to my head, I think the UK remains in the EU.

We are already seeing the effect in the markets - volatility. If the UK exits we will have a bit more volatility in the immediate aftermath, but I think the market then rallies simply because the uncertainty goes down, regardless of the outcome. The truth is that this vote has a big impact on the UK, but for the rest of the world, well, it is pretty irrelevant what happens in the UK. The UK is a small European country. Even if the UK goes into a deep recession how will that possibly impact India? Or Peru? Or Kenya? Answer: it will not impact any of those countries.

Rabobank International

We are somewhat more confident in our base case of the "remainders" coming out on top. We would, though, expect trading to be choppy in the run up to the vote not least owing to the uncertainty surrounding its outcome (this seeing it unlikely the current "risk on" tone will be maintained as the plebiscite draws nearer).

PEDALLING OUT?
Companies with high exposure to Europe are likely to be in focus in Friday’s trade after the result for UK referendum on European Union exit is announced. Given the rally on Thursday, the market is expecting a ‘remain’ outcome even as polls suggest a close call. Experts say markets will be volatile on Friday irrespective of outcome. Risks remain high in case of a ‘leave’. Technology, automobile and pharma could see volatility. Motherson Sumi, Suzlon Energy and Tata Steel, which get more than half of revenues from Europe, could trade heavily. Most of these have outperformed or moved in line with the market in a week and in June