On June 23rd, Brits will vote in a referendum on whether to remain in the European Union (EU), or leave. Depending on which news story you read, leaving the EU could devastate the UK\u2019s economy or free it from the shackles of EU regulation.<\/p>\n<\/p>\n
So which is it? The only answer is: it\u2019s neither. <\/em>That\u2019s because any argument you hear is either purely academic\u2014meaning, it\u2019s making assumptions to draw theoretical conclusions\u2014or it\u2019s political. Or, it\u2019s some fuzzy combination of the two, like the Bank of England Governor Mark Carney\u2019s assessment that a Brexit would assuredly mean a UK recession (he was hired by Prime Minister David Cameron, who is in the \u201cRemain\u201d camp).<\/p>\n My conclusion? The decision to \u201cRemain\u201d or \u201cLeave\u201d will not impact my forecast for modestly positive returns from equity markets in 2016, and I do not think it will dramatically affect the growth trajectory for the U.S. and the world.<\/p>\n In the near term (next 6 \u2013 12 months), my view hinges on the fact that a \u201cLeave\u201d vote does not mean that Britain leaves overnight. A \u201cLeave\u201d vote actually just triggers a 2-year <\/em>exit process, where the UK would almost surely retain market access while renegotiating the terms of trade, tariffs and labor movement. That is not to say the EU will be keen to make a new deal with Britain, or that they\u2019ll be friendly about the terms, but at least there will be time.<\/p>\n Possible Impact of a \u201cLeave\u201d Vote<\/strong><\/p>\n I\u2019ll focus analysis on the impact of a \u201cLeave\u201d vote, since a \u201cRemain\u201d vote means that essentially nothing changes. <\/p>\n \u201cLeave\u201d proponents argue that a Brexit would allow the UK to unilaterally pursue better trade deals, which could theoretically mean more favorable trade terms with countries outside the EU, like China and India. This could open up huge new markets for exports. Trade deals are not simple transactions, however, and worker\u2019s unions could emerge as fierce domestic opponents to deals. The EU has negotiated trade deals for the UK for the better part of 20 years now, so Britain would have a long way to go to re-establish relationships.<\/p>\n Nearly half of the UK\u2019s exports went to the EU. Additionally, Germany, Ireland, Spain, and Poland each count the UK as one of their top three trading partners. These relationships could be compromised with the \u201cLeave\u201d vote.<\/p>\n Leaving the EU might benefit local labor markets by stemming immigration, which has been a hot button political issue given the current refugee crisis in Europe. According to the Office for National Statistics, there are 942,000 eastern Europeans, Romanians and Bulgarians working in the UK, along with 791,000 western Europeans. That\u2019s significant. A \u201cLeave\u201d vote may turn this on its head.<\/p>\n Many global businesses have, until now, chosen the UK as their hub for connecting them to the greater EU. But, in the event of Brexit, new restrictions and duties may be thrust upon their cross-border operations with the rest of the EU, leaving multinationals with an undesirable quandary. The worst case scenario would be multinationals rethinking operations in the UK, which could stifle foreign direct investment flows\u2014a key source of growth (not to mention losing key sources of tax revenue).<\/p>\n On the other hand, a vote to \u201cLeave\u201d could empower local corporations to regain a stronghold, which in theory would benefit local citizens more than multinationals.<\/p>\n Bottom Line for Investors<\/strong><\/p>\n History suggests that when voters are faced with a huge decision questioning sovereignty, they tend to want to maintain the status quo. Looking back at the Quebec referendum in 1995 or the Scottish one in 2014, in both instances voters decided to \u201cRemain,\u201d and the issue passed. If I were a betting man, I\u2019d guess the same happens here.<\/p>\n At the end of the day, it\u2019s not really investors like you who should fear the Brexit; it\u2019s the businesses in the UK and EU that are heavily reliant on the single market. The restructuring and reshuffling based on policy and trade changes could be costly and arduous, and would take time. But remember, even \u201cLeaving\u201d means there\u2019ll be time.<\/p>\n \n","protected":false},"excerpt":{"rendered":" On June 23rd, Brits will vote in a referendum on whether to remain in the European Union (EU), or leave. 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