While the implications of a U.K. exit from the European Union are feared by investors in the U.K. and Europe, less than half are preparing for a so-called Brexit, said a survey of money managers and investors by MSCI. The vote takes place June 23.
Almost one-third (31%) of the 258 money management, bank and other investment professionals surveyed from the U.K., Europe, the Middle East and Africa said economic uncertainty is their chief concern, and 9% said political instability is the biggest worry regarding a Brexit. A further 7% said Brexit is likely to lead to a drop in foreign investment in the U.K.
Almost two-thirds of investors fear a Brexit will cause the pound sterling to plummet, and 40% think a “yes” vote will be a risk for the U.K. stock market. Thirty-four percent of investors say Brexit could reduce economic growth.
However, almost half of investors said they are making no plans to prepare for Brexit, while 26% said they are factoring a Brexit into financial planning. Of the respondents, 15% are building a Brexit scenario in their financial, operational and organizational plans.
The survey was conducted between April 26 and May 12.
Money managers could also experience negative effects in the event of a Brexit, warned Fitch Ratings in a separate analysis.
In “Leave or Remain: Hypothetical Brexit Scenarios,” Fitch said a vote to remain might still affect money managers' asset flows, as they might still be affected by “lingering longer-term uncertainty relating to the U.K.'s relationship with Europe after a 'remain' vote.”
Under a “favorable” exit scenario, “U.K. asset managers lacking a European presence may suffer some outflows as investors move money to EU-based asset managers; however, any such outflows are likely to be modest in this scenario as such asset managers have little reliance on EU investors anyway. Furthermore, the cost and time needed to establish EU operations, if needed, would be likely to be low,” the Fitch report said. Managers with U.K. and EU operations would be largely unaffected, said the analysis. An “unfavorable” scenario — the U.K. exiting with unfavorable trade terms with the EU and tight labor market conditions —“would put considerable pressure on U.K. asset manager ratings and could lead to rating downgrades.”