Brexit: What Cash Investors Need to Know

Introduction

There has been an increasing amount of coverage in the financial news media recently about the United Kingdom’s upcoming referendum regarding membership in the European Union (EU). On Thursday, British citizens will vote on the question: “Should the United Kingdom remain a member of the European Union or leave the European Union?” Should the Leave decision win, this would set in motion the scenario commonly referred to in the media as Brexit. We wanted to take this chance to explain our views on this issue and how it might affect your portfolio.

To Leave or Remain

It is still uncertain at this point whether Leave or Remain will prevail in the referendum. In polls conducted over the past several months, Leave and Remain have generally received about equal levels of support, usually only separated by a percentage point or two. In the past few days, polls have shown that Remain has pulled to a slight lead of about one percentage point. These polls may not be indicative of the final result: about 10-15% of voters still report as undecided, although evidence from other referenda around the world suggests that voters who make their decision at the last minute are most likely to support the status quo – in this case, Remain. Aside from polls, we can also look at the odds offered by betting houses and back out the implied probability of Brexit. The website Oddschecker, which aggregates the current odds available at over 20 different gambling outlets, has shown in recent days that bettors assign a 65-75% chance of Remain winning the referendum. This percentage has fallen in the past few days from the 70-80% range, following the pattern shown by the poll results. What conclusion can we draw? Both Leave and Remain are real possibilities, with Remain appearing to be the favorite.
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