Leave vote would have limited impact on FTSE, says SpreadCo analyst

Although consensus is that the FTSE 100 will rally if voters in the UK opt to remain in the European Union on Thursday and sell off on a Leave vote, the overall impact of an exit on London stocks may be limited, said SpreadCo analyst David Morrison.

“The damage to the FTSE100 as a whole may be limited. Not only due to its weighting towards internationally-facing corporations, but also because any weakness in sterling will make these companies more competitive and thereby boost earnings.

“Of course there will be individual winners and losers and ultimately the overall effect on the FTSE100 could be limited due to its constituents having a heavy international (around 70%) exposure.”

He pointed out that the share prices of big multinationals that derive a large chunk of their revenue and earnings from outside the EU are likely to benefit from a Leave vote.

“Quite simply, money will flow from stocks with direct exposure to Europe to those more internationally facing,” he argued.

Pharmaceuticals such as AstraZeneca, GlaxoSmithKline and Shire, oil majors and miners are likely to benefit as could companies with low exposure to the EU such as Centrica and Prudential.

However, airlines and tour operators may suffer a bout of selling first and questions asked later. Morrison highlighted EasyJet and Carnival as being at risk.

Meanwhile, pure domestic players such as housebuilders and banks like Lloyds are also likely to suffer.

As for the pound, Morrison said consensus was that GBP/USD would fall to between 1.1000 and 1.3000 in the event of a Leave vote. “Let’s call it 1.2000 and let’s assume cable is trading around 1.4000 ahead of the vote. That implies a decline of around 14%.”

In the event of a Remain vote, cable could surge to around 1.5000 initially. “If we again use 1.4000 as our pre-vote starting point, we’re looking at 1.2000 on the downside and maybe 1.5000 to the up.”