On June 23, the UK will hold a referendum on whether it should remain part of the European Union (EU). A vote to 'leave' the EU is not our base case, but a 'leave' vote would have more material consequences.
In Australia, we expect financials such as CYBG, Henderson Group, BT Investment Management and other companies with large UK or EU exposures hit harder, with relatively more support for defensive and yield-based exposures.
Online polling indicates a close race and a poll taken on Friday, 17 June – the day after the killing of pro-Europe British lawmaker Jo Cox – showed the campaign for the UK to remain in the EU ahead by three percentage points.
With a material percentage of people surveyed unsure or believing the UK will be worse-off economically upon an exit, we think this is the ‘remain’ camp’s challenge to lose.
From an economic perspective, the effect on the UK is expected to be more pronounced. Estimates have Brexit taking anywhere between 0.5-1.0 percentage points off UK growth in the first year after exiting the EU, while the estimated damage to euro-zone GDP growth is expected to be around 0.1-0.3 percentage points.