The UK referendum on June 23 about whether to stay in the EU could have disastrous effects on investors’ portfolios if the Brexit option is chosen, says index provider MSCI.
The firm has produced two possible Brexit scenarios using a macroeconomic risk model and while neither predicted a positive outcome, it is the ‘contagion’ model that poses a more dire outcome for investors.
If Brexit causes contagion, not only would UK GDP fall by 4.3%, it would have a significant impact on major indices, causing an 11.4% fall in global equities, losses in corporate and emerging market debt, and global multi-asset portfolios could experience losses of 6.9%.
The contagion would spread across countries remaining in the EU according to MSCI’s risk model, with Spain’s GDP growth dropping by 4.2%, Netherlands 3.7% and Italy 4.3%. The firm predicted that those countries’ equities markets would also suffer, falling 21%, 18.3% and 17%, respectively.
The fallout from a Brexit would also have implications for markets further afield. MSCI said in Japan that growth would slow by 0.8% while equities markets would decline by approximately 5%. The impact would also impact China, causing a GDP reduction of 0.5% and a slump in equities of 2.4%
This worst-case scenario also predicted that the pound would depreciate by 6.3% relative to the Japanese yen and that there could be a falloff of 22% in UK equities.
The firm said “a Brexit would shatter the Eurozone and drag down growth across the world”.
©2016 funds europe
