We have now been going for six weeks and the arguments are in full flow but gradually starting to focus on what the politicians think we care about, as voters. 
The ‘Stay Camp’ has played their ‘Better for Business’ card extensively with support from a multitude of business leaders from the FTSE 100 and also the CBI. The ‘Leave Camp’ has tried to muster some counter-weights to this but not to great effect as the majority of the business population, including the City, are defaulting to keeping the status quo.
The ‘Leave Camp’, realising they are probably not going to score highly on the economic arguments as there is no exit plan are now shifting tack to the immigration argument, especially pertinent in the light of the events in Brussels.
Politics is a messy business and there are all sorts of views and opinions which are being supported by real-time events. As each week goes by, there is a new reason which either supports or detracts from the arguments in either camp.
George Osborne’s budget was the source of the resignation of Ian Duncan Smith on the basis of his changes to disability benefits. In all reality, he most likely would have resigned at some point choosing to play his joker card on some issue which would wound the ‘Stay Camp’.
He just happened to choose the budget as his moment.
We have considered the likely implications of either outcome in our Asset Allocation Committee and have reached some conclusions.
Firstly, it is futile to base an investment strategy on a binary outcome of a vote on the 23rd of June and anyone who follows this as an approach is ignoring the fundamental basics of investment – it is a long term game and challenges come from all directions all the time.
Secondly, is the outcome of the UK’s Brexit vote a bigger issue for global markets than the evolving scenarios relating to the US election in November?
What about the Chinese economic slowdown and we hear today that Japan is looking to impose its sales tax after all, just when the economy is struggling – surely that has big implications for that economy?
Performance of index in 2016
Source: FE Analytics
Additionally, the oil price appears to be losing ground again and that may take the equity market back down with it as it did in February.
That said, the US economy appears to be in rude health.
We will find out more on Friday when the employment payrolls are announced along with PMI manufacturing data. Also, US fourth quarter GDP was upgraded just last week, although this is leading to revised views on the trajectory of future US interest rate rises – another market sensitive hot topic.
When thinking through the implications of the UK voting to leave the EU, it will undoubtedly cause a significant degree of uncertainty and as the vote approaches, the market environment will become very tense, not dissimilar to the Scottish Referendum.
David Cameron will most likely have to resign and it would now appear that George Osborne is no longer his heir apparent.
The prospect of Boris Johnson taking over would not sit well with the City and then the Scottish Referendum would rear its head once again. However, none of these issues will really affect the day-to-day operations of businesses of today and are unlikely for the weeks that follow a successful ‘Leave’ vote.
Nevertheless, this will not stop the inevitable hysteria that would follow and for this reason it is probably wise not to commit too much cash right now if looking to make a fresh investment over the next few weeks.
Relative performance of currencies in 2016
Source: FE Analytics
Sterling is inevitably weakening which helps exporters but will push up our import costs, so net-net, a drag on the economy which could also push up inflation over time.
There are bound to be more jokers to be played by the campaign teams over the next few weeks. The ‘Stay Camp’ is now calling on the Labour party to make sure they encourage their voters to turn out – the first time this can ever conceivably have happened.
The polls are showing a very even result between the two camps but after the UK election, their credibility is open to question.
At the time of writing, the bookies odds are little changed at 4/11 for staying and 15/8 for exiting, a slight improvement for the ‘Leave Camp’. We will review again in a month’s time – no doubt further headlines and political skulduggery will emerge during the period.
Guy Stephens is managing director at Rowan Dartington Signature. All the views expressed above are his own and shouldn’t be taken as investment advice.
