Why second Brexit referendum would be best for investors

CEO weighs up what UK's messy divorce from the EU means and why a delay would also be welcomed by the markets

Why second Brexit referendum would be best for investors

The Brexit negotiations have been as confusing as the Academy Awards organizing committee, with every passing day throwing up new permutations.

As the March 29 deadline fast-approaches, WP takes a look at what it might mean for those investors with interest and positions in the UK market and economy. First up, AGF’s CEO Kevin McCreadie gives his take on what would be the best-case investment scenario, while tomorrow, Vanguard’s European chief economist Peter Westaway shares his view.

Yesterday, the landscape titled again as British PM Theresa May backed down in the face of rebels in her own cabinet by promising a vote to rule out a no-deal Brexit and delay the UK’s exit from the UK if Parliament fails to approve her so-far unpopular exit agreement, which has taken two-and-half years to negotiate.

This development may allay some of the no-deal fears that McCreadie believes was starting to reach fever pitch.

He said: “Investors, for their part, have become more nervous by the day. And with market volatility set to increase leading up to the March-end Brexit deadline, nerves could get even more rattled if no deal is in place by then.

“To date, reaching an agreement that satisfies all parties has not been an easy task. Britain, like many countries that have spawned populist movements in recent years, has shown itself throughout the process to be a deeply-divided nation – especially when it comes to the issue of globalization and its main tenets of free trade and open borders.”

The Ireland “backstop” remains a major hurdle that has yet to be resolved, with sensitivities over the border and Ireland’s history of conflict inexplicably brushed under the carpet by the majority of the country’s politicians.

While the UK wants to put a time limit on the backstop, which, in effect, would keep Northern Ireland in the EU customs union only for a limited period, the EU is adamant that any backstop must be applied “unless and until” it is no longer needed. Neither side is willing to budge.

McCreadie said that, ultimately, the best case for investors is that Britain eventually chooses to hold a new referendum – something the opposition Labour party now endorses – and that voters reverse the original decision.

However, he said the most likely outcome is an “agreement of disagreement”, which would result in a deadline extension.

He said: “This doesn’t necessarily solve much longer term, but kicking the can down the road is familiar terrain for those who remember the European debt crisis and ‘Grexit’ and would offer investors a welcome reprieve from all the current hand wringing.

“An even better, but less likely, scenario would be both sides reaching a ‘soft’ Brexit deal before the existing deadline. In this case, more time may still be needed to pass all the necessary laws, but fears of a market collapse would be greatly diminished.”

Leaving the EU without a deal would be a disaster – which is probably why May has backed down from her original position. A “hard” Brexit would send the markets into a tailspin.

McCreadie said: “[A ‘hard’ Brexit] would be extremely disruptive to markets and could contribute to extreme food and medicine shortages, mass corporate re-locations, and spark the potential for much higher inflation and dramatically increase the chance of recession across Europe if not globally.”