The most important election for investors this summer happens in the week ahead. And it happens in the United Kingdom.
British voters will decide on Thursday whether to remain in the European Union or not. Like most elections led by economics and fed by emotions, the biggest risk of the Brexit vote is the sheer uncertainty of it; uncertainty of Thursday’s results, uncertainty of what leaving the EU would do to the British economy and the uncertainty of the impact on the rest of Europe.
Thursday’s vote has consequences for immigration, trade and regulations in Britain. It also will echo in all corners of the global financial world. Banks on the European continent hold billions of dollars of U.K. bonds as an emergency financial cushion. If Britain exits the EU, those may have to be replaced. The British have their own currency, the pound, which could drop to a 30-year low if the U.K. leaves, according to a Bloomberg survey. The U.S. dollar could strengthen, making American exports that much more expensive as U.S. companies look for foreign buyers to help fuel profits.
London real estate, some of the most expensive in the world, could drop in value. The U.K. Treasury has warned leaving the EU would mean a half million fewer jobs and a slower economy two years after any exit.