Brexit could cut £400bn from UK equities

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A Brexit vote would dramatically increase risk premiums on UK equities, one macro-research house has argued, wiping more than £400bn off the market.

Absolute Strategy Research has argued that the risk premiums attached to UK equities could rise to from 5 per cent to 6 per cent after a vote to leave, implying a 20 per cent reduction in their value.

Absolute head of research David Bowers says: “The UK’s equity risk premium is lower than you might expect for current levels of policy uncertainty.”

And chief investment strategist Ian Harnett adds: “A 20 per cent fall in UK equities could wipe £450bn off the UK market. That would be a big hit for UK pensioners."

Read More: UK government borrowing costs hit record low ahead of EU referendum

Harnett also notes that foreign investors would sufer in particular because sterling would also drop in the event of Brexit.

“If Sterling breaks $1.38 then there is little technical support before parity – that implies a 28% fall,” he said.

However, the good news is that the research house maintains that there is currently only a 24 per cent chance of the UK voting to leave on 23 June.

Full story: Brexit could cut £400bn from UK equities: City A.M.

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