Four ways the Brexit referendum could affect you
The Brexit referendum on June 23, where the UK will vote to decide whether it will remain in the European Union or leave it, is now looming large as a potential "event risk" for investors.
At this stage opinion polls suggest that the outcome is too close to call, but there is still a high level of undecided voters.
If last year's Scottish independence vote is any guide, they may break in favour of the status quo and vote to remain.
So a bit like the Y2K kerfuffle of 1999, or the US fiscal cliff worries of 2012, all the hot air about a Brexit could turn into a non-event. But given the close polls, investors need to consider what it could mean for them. Here are four ways it could affect you if Britain leaves the EU.
1. Your European equities could devalue
Any UK assets you have may fall in value, as the British pound would likely fall.
A Leave decision would be seen as negative for the UK economy, given the threat that leaving the EU would pose for British free trade access with Europe, the UK financial sector and UK labour costs, as labour mobility would be restricted.
Of course much will depend on what sort of exit the UK negotiates with the EU, which could take several years to work out. But markets may shoot first and ask questions later.
2. Your investment portfolio may see some volatility
Your exposure to European assets may come under pressure via a weaker Euro as investors might worry that a Brexit could affect the stability of the Eurozone. A Brexit would not be the same as a Grexit ("Greek Exit") because Britain is not in the Eurozone.
But it could lead to renewed concerns about the durability of the Euro, to the extent that it may be seen as encouraging more countries to exit the EU (like a Frexit, or "French Exit"). Renewed worries about a break up of the Euro could in turn reignite concerns about the credit-worthiness of debt issued by peripheral countries in the Eurozone and lead to a flight to safety out of the Euro.
Of course all this would take a long time to unfold and ultimately a Brexit could trigger more pressure for integration in the Eurozone.
We may also see renewed financial market volatility, generally as money flows out of Euro into the US dollar, which could in turn put renewed pressure on emerging market currencies, Chinese currency and commodity prices. All of which could trigger a renewed bout of nervousness in global financial markets like we saw earlier this year.
Tip: Getting exposure to the US dollar could be a bit of a hedge against a Brexit.
3. Your Australian stocks might also take a hit
A Leave victory may be seen as reinforcing the anti-globalisation forces already evident globally which in turn is a dampener on global and hence Australian growth.
4. The AUD will likely get stronger
If the British pound falls versus the Aussie dollar it could make for cheaper holidays in the UK.
What happens in the UK economy is not as directly important for Australia these days.
It now takes just 2.7% of our exports. But as we have seen with Grexit scares in recent years, the wider implications of a potential Brexit are worth some thought for investors. Of course if you are a long-term investor, it's just another piece of noise not worth worrying about too much.