My prediction for the EU referendum (and how it could impact share prices)

With the EU referendum less than a week away, here’s how I think it will play out.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

During the last couple of weeks, the opinion polls have shown a surge in support for the campaign to leave the EU. While all polls show slightly different results, it now seems that at the present time Britain is headed for the EU exit.

The reasons for this are difficult to identify since neither campaign appears to have comprehensively won the economic or political argument. Both have been accused of scaremongering and this has turned a number of voters off from the debate. In fact, around 8%-10% of voters are still said to be undecided regarding the vote and they will likely determine the result since it’s very, very close at the present time.

However, it’s my view that Britain will vote to leave the EU. That’s not because I’m necessarily in favour of it, nor do I think it would be a sound move in the short-to-medium term. However, with momentum being so crucial to past election campaigns, the leave campaign appears to be in pole position at the present time.

The effect of Brexit on share prices is a known unknown. However, the stock market tends to price-in what investors believe will take place in future. In other words, a fall in the FTSE 100’s price level of around 5% has taken place in the last couple of weeks and this has coincided with the aforementioned rise in support for the leave campaign. This shows that while the FTSE 100 could fall in the aftermath of a vote to quit the EU, it may already be priced-in to at least some extent.

Furthermore, with the FTSE 100 being made up of mostly international stocks, it may be more closely linked to the performance of the global economy than the outcome of the EU referendum. This means that even if the UK economy endures a tough period, share prices may hold up better than domestic-focused assets simply due to their lack of reliance on the UK economy for sales and profit growth.

Volatility

Of course, while share prices may not fall as heavily as many people expect, they’re likely to be relatively volatile. That’s because Britain leaving the EU would be an unprecedented event that would cause a high degree of uncertainty over the short-to-medium term. And as history has shown, investors don’t particularly like uncertainty so this could cause share prices to move more wildly than is usually the case.

A key reason for this isn’t just the prospects for the UK economy, but also for the EU and global economies. Britain leaving the EU could realistically strengthen support in other EU member states for referenda on the same subject and this could give the political union an uncertain long-term future. In turn, the outlook for global economic growth may be downgraded.

Clearly, next week’s decision is on a knife-edge, but the polls indicate that Britain is more likely to leave the EU than stay. As such, the coming weeks and months could prove to be a sound buying opportunity for long-term investors if stocks markets become volatile.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

More on Investing Articles

Passive income text with pin graph chart on business table
Dividend Shares

How to invest £20,000 in 2025 to generate safe passive income

It’s easy to generate passive income from the stock market today. Here’s how Edward Sheldon thinks investors should build an…

Read more »

Runner standing at the starting point with 2025 year for starting in new year 2025 to achieve business planing and success concept.
Investing Articles

Could the FTSE 100 hit 9,000 in 2025?

The FTSE 100 has lagged other indexes over the last year. But some commentators believe 2025 could be a stellar…

Read more »

Investing Articles

Why selling cars could drive the Amazon share price higher in 2025

After outperforming the S&P 500 in 2024, Stephen Wright's looking at what could push the Amazon share price to greater…

Read more »

Pink 3D image of the numbers '2025' growing in size
Investing Articles

3 of the best British shares to consider buying for 2025

Looking for UK shares to think about buying next year? These three stocks have all been brilliant long-term investments but…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

5 crucial Warren Buffett investing habits and a stock to consider buying now

Here's a UK stock idea that looks like it's offering the kind of good value sought by US billionaire investor…

Read more »

Frustrated young white male looking disconsolate while sat on his sofa holding a beer
Investing Articles

2 legendary FTSE 250 shares I won’t touch with a bargepole in 2025

Roland Head looks at two household names and explains why these FTSE 250 shares are already on his list of…

Read more »

Investing Articles

Why I think the Barclays share price is still a bargain heading into 2025

Stephen Wright thinks a combination of dividends and share buybacks means the Barclays share price is still attractive, despite a…

Read more »

Aerial shot showing an aircraft shadow flying over an idyllic beach
Investing Articles

Here’s how an investor could use £10 a day to target a £2,348 second income

For just a tenner a day, our writer illustrates how an investor could build a four-figure annual second income over…

Read more »