Market Overview

Forget A Grexit; What About A Brexit?

Share:
Forget A Grexit; What About A Brexit?

  • UBS believes that the U.K. could vote on exiting the eurozone in 2016.
  • Although an exit is possible, UBS believes that a compromise that keeps the U.K. in the EU is more likely.
  • A “hard exit” from the EU could be devastating to the U.K. economy.
  • A new report by UBS analyst David Tinsley explored the possibility of a U.K. exit from the eurozone. Tinsley believes that a referendum on a U.K. “Brexit” could come as soon as 2016.

    Timing

    According to the report, the most likely timing of a referendum would be October 2016. “The time for the market to start preparing for this is now, given it could have a potentially significant impact on asset prices and volatility, not to mention the real economy,” Tinsley cautioned.

    Outlook

    UBS sees a real possibility of U.K. voters choosing to leave the eurozone, but the firm believes that the most likely outcome is that a compromise will be worked out, providing more favorable eurozone membership conditions for the U.K.

    In that scenario, U.K. equity markets might demonstrate a pickup in volatility approaching the referendum date, but the long-term effects on equity prices should be inconsequential.

    Related Link: Will Cameron's Diplomacy Avoid A Brexit?

    Brexit Scenario

    If British voters do choose to leave the eurozone, Tinsley explained that the nature of the exit will be critical for British investors. A “hard exit” could mean that the U.K. would lose access to trade in goods and services and would see a reduction in migration. Tinsley sees this scenario having a significant negative impact on U.K. GDP.

    Financial Sector

    According to Tinsley, the financial sector could be hit hard by a eurozone exit, especially if the U.K. loses financial regulatory influence as a result.

    This loss of influence would likely not bode well for the share prices of U.K. banks such as Barclays PLC (ADR) (NYSE: BCS), HSBC Holdings plc (ADR) (NYSE: HSBC), Lloyds Banking Group PLC (ADR) (NYSE: LYG) and Royal Bank of Scotland Group PLC (NYSE: RBS).

    Disclosure: The author holds no position in the stocks mentioned.

    Image Credit: Public Domain

    Latest Ratings for BCS

    DateFirmActionFromTo
    Nov 2018DowngradesOutperformNeutral
    Oct 2018UpgradesHoldBuy
    Jun 2018DowngradesBuyNeutral

    View More Analyst Ratings for BCS
    View the Latest Analyst Ratings

    Posted-In: Brexit David Tinsley GrexitAnalyst Color Eurozone Top Stories Markets Analyst Ratings Best of Benzinga

     

    Related Articles (BCS + HSBC)

    View Comments and Join the Discussion!

    Latest Ratings

    StockFirmActionPT
    COMMInitiates Coverage On
    KEYWDowngrades
    ISRGMaintains575.0
    PBCTDowngrades
    CNSDowngrades
    View the Latest Analytics Ratings
    Don't Miss Any Updates!
    News Directly in Your Inbox
    Subscribe to:
    Benzinga Trading Daily
    Get pre-market outlook, mid-day update and after-market roundup emails in your inbox.
    Market in 5 Minutes
    Everything you need to know about the market - quick & easy.
    Daily Analyst Rating
    A summary of each day’s top rating changes from sell-side analysts on the street.
    Thank You
    for registering for Benzinga’s newsletters and alerts.
    • The Daily Analysts Ratings email will be received daily between 7am and 10am.
    • The Market in 5 Minutes email will be received daily between 7am and 8am.
    • The Fintech Focus email will be received every Friday between 2pm and 5pm.

    Royale Energy Regains 100% Ownership in N. Slope Acreage

    Patience Yields Much Better 'Sell Rosh Hashanah, Buy Yom Kippur' Results