Great Britain votes Thursday on whether it should leave the European Union, a move known as Brexit. The vote will decide the question but it will not guarantee either an outcome in Europe or what the impact will be on American markets.
Most arguments for and against Brexit have focused on the economy in Great Britain.
According to the OECD, if Britain leaves the EU, every home in the country will lose the equivalent of $3,212 by 2020. The CBI says leaving the EU would cause a loss of 950,000 jobs and lower Britain’s GDP by $146 billion by 2020.
Meanwhile the Bank of England’s Monetary Policy Committee believes Brexit would lead to a weak pound, good for exporters, bad for the price of imported goods.
Those arguing for Brexit say pulling out of the EU will allow Britain to keep the funds it currently pays to the EU. The pro-Brexit group also says it will be possible to renegotiate trade deals quickly, countering the anti-Brexit fears mentioned above.
The anti-Brexit crowd also says cooperation between counties as a member of the EU provides more protection than would be available outside the organization.
The pro-Brexit forces, on the other hand says leaving the EU would allow Great Britain to exercise more control on who can come into the country and who can be removed. This “immigration” question has been a huge motivator for the pro-Brexit crowd.
But what about the American stock markets? How might they be impacted?
Impact on U.S. Markets
Many analysts have said they see almost no impact of a potential Brexit on U.S. stock markets. This attitude is based on knowledge that at least half the market cap in the world resides in U.S. markets.
Others, however, see a different outcome. Laurence Wormald, head of research at FIS, has calculated that a pro-Brexit outcome would result in a 5% drop in the S&P 500, an 8% decline in banking stocks and a 40% increase in volatility in the stock market at large. So much for “no impact.”
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Stocks To Watch
Analysts at JPMorgan Chase & Co. (NYSE:JPMC) said, “We view the majority of U.S. companies with U.K. exposure as relatively insulated from the potential fallout of a vote in either direction from a pure fundamental standpoint. From a sentiment point of view, however, we expect these stocks could outperform should the U.K. remain within the EU.
The anti-Brexit outcome stocks named include Penske Automotive Group Inc. (NYSE:PAGB), which has 33.4% revenue exposure to the U.K. PPL Corp. (NYSE:PPLD) has 31.4% exposure and exposure for PRA Health Sciences Inc. (:PRAHN/A) is 26.5.
Others expected to do well if Britain stays in the EU are Invesco Ltd. (NYSE:IVZC), Xerox Corp. (NYSE:XRXC), Ford Motor Co. (NYSE:FC), eBay Inc. (NASDAQ:EBAYC) and PayPal Holdings Inc. (NASDAQ:PYPLC).
One stock named as a potential beneficiary of a pro-Brexit vote is Freeport-McMoRan Inc. (NYSE:FCXC), a miner/oil and gas company expected to be a happy recipient of money leaving the financial stocks and moving into basic materials.
Another potential winner with Brexit is HSBC Holdings PLC(NYSE:HSBCC), the U.K.’s largest bank. Although financial institutions are expected to do poorly in a Brexit environment, some analysts believe HSBC would be a prime candidate for a Bank of England bailout, making the stock both a short-term and a long-term play – for different reasons.