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MARKET-WATCH: The Fear Factor of Brexit

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Personally I think we’re better off IN the EU than OUT. However, in or out, the UK will continue to prosper. We’re a nation of inventive and entrepreneurial people and will adapt to whatever result the June 23rd referendum throws our way…writes Sukhvinder Gill

david cameron As I discussed in last week’s column, the UK stock market has endured a hammering over the last few months, losing around 20% of its value. How much of this is due to fears that the UK may be heading for an EU exit? Less than most people think in my opinion. Here’s why:

Stock markets are down all over the world, the UK is not the worst performer. Those folks in the USA and Japan really aren’t going to let talks of a Brexit interfere with their morning cornflakes, let alone their stock markets. So it’s safe to say that other factors are weighing down on the FTSE aside from Brexit.

David Cameron’s EU negotiations concluded this weekend – the concessions achieved, even in the minds’ of the most fervent Cameron supporters, were lukewarm at best. London Mayor Boris Johnson, seen as some as a Svengali figure in the Brexit debate, finally nailed his colours to the mast – he wants out of Europe. These two factors undoubtedly strengthen the Brexit camp.

Despite this, as I write this piece on Monday morning, the FTSE 100 is marginally higher. Could an exit be pretty much already priced in? However the stock market alone does not paint the complete picture. The UK pound has had a bad morning, falling against every major other currency.

A Brexit would not mean that the UK would be cast into the global wilderness. Existing deals and treaties would take many years to unpick and renegotiate. And our foreign counterparts would be only too eager to secure new deals with the UK.

There is absolutely zero chance that the likes of Mercedes, Audi, BMW would do anything but cosy up to the UK in the case of an exit. They need us, simple.

And it’s naïve to think that the City’s existence as a global financial hub is contingent on continued EU membership. Banks need and like the UK’s fair and robust legal and regulatory environment, and bankers like living in London.

Financial markets, just like human beings, deal with facts pretty well, what they hate is uncertainty. This breeds fear and subsequent exaggerated moves.

Personally I think we’re better off IN the EU than OUT. However, in or out, the UK will continue to prosper. We’re a nation of inventive and entrepreneurial people and will adapt to whatever result the June 23rd referendum throws our way.

( Sukhvinder Gill has worked as a Global Business Head and Trader in Capital markets for over 20 years)

 

 

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