Saturday 1 October 2016

Why you could be left out of pocket should Britain vote to leave the EU

Published 06/03/2016 | 02:30

Ryanair chief executive Michael O’Leary launches a ‘Yes to Europe’ campaign last week Picture: PA
Ryanair chief executive Michael O’Leary launches a ‘Yes to Europe’ campaign last week Picture: PA

Sterling continued near a seven-year low early last week as fears of a possible British exit from the European Union took its toll on the currency.

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The weak sterling has pushed up the cost of foreign holidays for British holidaymakers and is expected to push property prices down in the UK - and prices in its shops up. However, the British people are not the only ones who could be left out of pocket by the Brexit uncertainty - Irish investors and pensioners could lose money too.

Losers

"Brexit could have a significant impact on British and European economies," said Aniket Bhaduri, an investment consultant at British pension advisers JLT Employee Benefits.

"Equities in these regions could see sharp depreciation - along with the depreciation in the sterling and euro. The most vulnerable pension funds would be those invested heavily in Britain and Europe - particularly those with a large exposure to equities in these regions. Pension funds which have invested outside Britain and Europe, but which have hedged their currency exposure at a high sterling value, are also vulnerable."

Investors in British commercial property could be burned should sterling continue to weaken. "Anyone who is holding British assets, such as British property or equities could be impacted by the uncertainty around Brexit," said Robbie Kelleher, senior investment strategist with Davy.

Those who own shares in Ryanair, Origin Enterprises and the drinks group C&C could also lose money.

"The companies most exposed [to Brexit], albeit from a largely accounting perspective, include Origin Enterprises, C&C and Ryanair," said George Moore, head of equity research with Investec.

"Brexit may hurt Origin's British-based farming customers," said Mr Moore. "British farmers currently receive 60pc of their income from EU subsidies and environmental subsidies. Their withdrawal, if unmitigated, would put huge pressure on farm incomes."

Brexit could hit Ryanair shareholders - and it could also put out those who fly regularly from Ireland to Britain.

"We believe any impediment to the free movement of passengers would likely add to Ryanair's costs - albeit for the whole industry - and these costs would likely be passed on to customers," said Mr Moore.

The weak sterling also puts pressure on Irish exporters to Britain, which is bad news for anyone who has invested in such companies. Our tourism industry could be damaged too - because a floundering sterling makes it more expensive for British tourists to visit Ireland, which could trigger a downturn in the numbers visiting from Britain. So Brexit could be bad news for investors in Irish hotel chains.

Winners

Pension funds with exposure to safe haven assets could make money on the back of Brexit, according to Mr Bhaduri.

"Uncertainty around Brexit and Brexit itself is likely to add significant volatility to financial markets," said Mr Bhaduri. "Investors may seek safety in safe haven assets such as treasuries and gold - so pension funds could make money if they are invested defensively in such safe haven assets.

"Volatility is great for fund managers that have the liberty to play both the long and short side of the markets. So pension funds that have exposure to long-short could make money too."

Shares in Paddy Power, DCC, Grafton and the ferry operator ICG could do well amid the Brexit jitters, according to Investec.

"Assuming sterling weakens further, the most obvious winners are Irish companies reporting in sterling - but with significant earnings in euro," said Mr Moore.

"Here, the leading candidates are Paddy Power Betfair, DCC and Grafton. If Brexit were to actually occur and duty-free were reintroduced between Britain and Ireland, a clear winner would be ICG."

Irish consumers could also be winners from a Brexit - as it could be cheaper to buy goods here that are imported from Britain.

"A lot of the products we import from Britain could actually come down in price if the sterling continues to weaken," said Mr Moore. "So things like sandwiches in Marks & Spencer or clothes from a British fashion chain could become cheaper."

However, should Brexit go ahead, it could become more expensive to buy British goods here because any barriers to trade could increase the prices of British imports to Ireland, according to a recent paper by the Economic and Social Research Institute.

There are another 16 weeks to go until the Brexit referendum. Many investment experts, including Mr Donnelly and Mr Moore, don't believe Brexit will happen.

Wishful thinking perhaps - but only time will tell.

Sunday Indo Business

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