Here is another round-up of wealth managers' views about the risks and rewards at stake in the UK referendum on EU membership.

There are just over two weeks to go before UK voters decided whether the country should quit the European Union, of which it has been a member since 1973, or remain. Opinion polls show a close race, and this is understandably creating uncertainties for wealth managers and their clients. Here are comments from a selection of firms.

Stanhope Capital
“We expect the vote to come down in favour of remaining and this might give a small boost to UK and European equities. If we are wrong and the leave camp win we do not foresee any systemic global impact from Brexit. In the context of a Brexit, markets may weaken slightly in the short term and sterling is likely to fall, perhaps towards $1.30. However, although UK economic growth may weaken as a result and gilts may fall slightly we do not envisage a significant move in UK equities. Longer term, the focus would be on the terms of the exit, which would take at least two years to negotiate,” the private investment office said in its recent fortnightly investment note.

“Not only are markets labouring under the uncertainty of Brexit, but also US Federal Reserve policy and a poor outlook for global earnings growth. However, valuations do not look stretched in Europe, Asia or emerging markets and our sense is that if the ‘fog’ starts to clear on some of these issues, risk assets could start to move ahead,” it said.

Caroline Simmons, deputy head of the UK investment office at UBS Wealth Management
“Should UK citizens vote to leave the European Union, we could see the performance of the FTSE 100 index fall by over 10 per cent. The stock market valuation could drop closer towards valuations seen during the 2012 euro crisis, but this would be cushioned by an 8 per cent boost to earnings from the weakness we foresee in the pound. If on the other hand the UK votes to remain, the FTSE 100 could rise by up to 5 per cent over 12 months, with further upside capped by pound strength,” Simmons said.

"The FTSE 250 could be affected to an even greater extent, given that the mid-cap index generates 50 per cent of sales in the UK, compared with just 25 per cent for FTSE 100 sales. The index has already underperformed the FTSE 100 this year. Meanwhile, a basket of UK and Europe-exposed FTSE 100 companies has also underperformed the market by 5 per cent and 4 per cent respectively," she continued.

The firm said segments most likely to be hit by a leave vote could include UK-exposed and cyclical sectors, and cross-border trade companies. Commercial real estate and house prices will likely be determined by credit conditions, which could deteriorate under a vote to leave the EU. 

Marie Owens Thomsen, chief economist, Indosuez Wealth Management
Owens Thomsen notes that Article 50 of the Lisbon Treaty states that any member of the EU can withdraw, and she argues that a withdrawal process will be complex, requiring a qualified majority of 20 of 27 other member states to vote in favour. Negotiations for new trade deals between the UK and other EU states will take far longer than two years to complete, she said.

“In addition to the detrimental effects of prolonged uncertainty and the opportunity cost of spending time and money on these negotiations instead of more pro-growth policies, one can expect the UK financial industry, car manufacturers, and farmers to be particularly hurt by an exit, at least until a new framework emerges for the UK, in 2019 at best,” she said in a note. “Estimates for the impact on UK GDP range from -5 per cent to +2 per cent, the range being determined by whether the UK fails to strike trade agreements with the EU and other countries or not.”

She added: “The EU and all its remaining members, especially Ireland, would also lose out. The other member countries would have to pay the UK contribution (if no solution similar to Norway and Switzerland); the EU would lose cohesion; and lose internal opposition – the UK has been an important initiator of reform within the EU."

However, she says the rising chance that the UK will vote to remain in the EU has not been fully priced in by equity market investors; from a tactical viewpoint, she recommends clients go overweight Europe and banks.

Mark Wills, head of the investment solutions group, Asia-Pacific, at State Street Global Advisors
“Conservatives have been divided on the EU for at least 25 years. The opposition Labour party opposed EU membership in its early years, but eventually came around. The last time Britain had a referendum over its EU membership was in 1975,” he said in a note. “As of early May, polls were too close to call. A 3 May ICM poll showed a 44 per cent to 45 per cent split with 11 per cent undecided." 

He added: “Financial markets are likely to react with volatility to a UK vote in favour of leaving the EU. The UK makes up just over 7 per cent of the MSCI World index. Volatility is likely to travel beyond Britain because the country has large government bond market and the British pound is widely traded. Markets hate uncertainty. A potential ‘leave’ vote will not do markets any favours."