Investment implications of a Brexit

BlackRock experts discuss the key economic, financial and political risks of a British exit, or Brexit.

Heidi Richardson, Head of Investment Strategy for U.S. iShares, and Ewen Cameron Watt, Senior Director of the BlackRock Investment Institute, examine what a potential British exit from the European Union could mean for investors.

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    Heidi: Hi, I'm Heidi Richardson, Head of Investment Strategy for U.S. iShares, and I'm in London today to meet with Ewen Cameron Watt, Senior Director of the Blackrock Investment Institute. Ewen, being in London, all eyes are on the potential of Britain leaving the European Union. Most commonly referred to as Brexit. Now the European Union is a group of 28 member countries to have the free flow of capital, of people, of goods and services. So what is this vote on June 23rd to leave the European Union mean?

     

    Ewen: It means that the U.K. is and always has been a reluctant European. Part of Europe, but not fully part of Europe. And this is a debate which has been raging for many years here, and probably will continue into the future. But at its heart it is a debate between jobs and incomes on one side — that's to “remain”. And, sovereignty and particular immigration risk on the other side, which is the “leave” campaign's main point.

     

    Heidi: Now this is unprecedented really, to have somebody leave the European Union. So without giving any outlook on whether the remain or the leave will happen, what does leave actually mean for the U.K. markets?

     

    Ewen: It will be a severe shock to the U.K. markets even though we've been talking about it for many months. And to sterling. The reasons are pretty simple. U.K. depends upon foreign flow to support the economy — more than anybody else in the G7 — and that foreign flow — direct investment, portfolio investment — is probably going to be less because the economy will be smaller. The second thing is it's not just a U.K. issue, it's a European issue as well. And the stability of the European Union will be severely tested should the U.K. vote to leave.

     

    Heidi: So we only have about a month or so to go until the vote. Do you anticipate more volatility in the markets around this, whether the leave or remain vote happens?

     

    Ewen: As we speak today around May 20th, and what we're seeing is that because the opinion polls — notoriously unreliable — are suggesting the vote is going to be to remain. The sterling volatility, which has been the currency that people have used to hedge the risk, has declined quite a lot in the recent weeks. So I think that we're looking now over the next month at whether or not the polls, the opinion polls, swing back in towards, towards leave. And if they do, or if there's this unexpected result on the 23rd of June, then you will see a shock to equities, a shock to the currency. Less of a shock to bonds because of domestic savings demand for them. And a shock to UK real estate.

     

    Heidi: Great, that's super helpful. Thanks so much for helping us, and thanks for listening in.

Heidi Richardson
Managing Director
Heidi is Head of Investment Strategy for U.S. iShares. She relates the team's research and investment views to key institutional and financial advisor clients ...
Ewen Cameron Watt
Managing Director and Portfolio Manager
Ewen is Chief Investment Strategist of the BlackRock Investment Institute. He leads internal events and debates between investment leaders, and represents these ...