Investment Clock insights

Backing the bookies on Brexit

Trevor Greetham

16 May 2016

Opinion polls suggest the 23 June EU Referendum is too close to call with the Remain and Leave camps still neck and neck with less than six weeks to go and the political rhetoric getting more and more extreme. More than one in 10 people say they are undecided, however, and experience of the Scottish independence referendum and the last General Election has taught us to be sceptical about what the pollsters say.

Expert opinion takes a very different view, with almost 90% of the investment professionals at our annual investment conference on 28 April expecting Remain to win the day*. The weight of money staked on the outcome at bookmakers reflects this strength of feeling with an academic website we monitor** putting a 69% probability on a Remain vote, based on information from online betting exchanges. Bookmaker Ladbrokes reported that 90% of the wagers placed with them over the last four weeks have been for Remain.

We’re backing the bookies. We think economic arguments and a desire to remain engaged with the world will win the day. And while Remain is a consensus view, it is not fully priced in to markets. Survey evidence suggests the UK economy is being hurt by uncertainty ahead of the referendum. A Leave vote would prolong that uncertainty, potentially triggering a technical recession and a base rate cut. Markets need to factor this in as a real possibility. If the result is Remain, however, then uncertainty will lift almost overnight, boosting confidence and bringing forward the timing of the first base rate hike. 

Our multi asset funds are overweight sterling and underweight gilts, positions we expect to do well if the UK remains in the EU.

*Source: RLAM as at 28 April 2016. ** The value of investments and the income from them is not guaranteed and may go down as well as up and investors may not get back the amount originally invested. The views expressed are the author’s own and do not constitute investment advice.