Scottish referendum markets hate uncertainty says Tilney Bestinvest

Scottish referendum – markets hate uncertainty says Tilney Bestinvest

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Julia Grimes
Published: 09 Sept 2014 Updated: 03 May 2016

Comment from Managing Director and Head of Tilney Bestinvest, Glasgow, Paul Frame:

“In recent days next week’s vote on Scottish independence has come bursting to the forefront of investors’ minds as polls suggest the yes camp may be closing in on victory having dramatically eroded a persistent lead for the Better Together camp. The latest polls have hit the value of sterling and also many Scottish listed companies.

“Irrespective of where one stands on the major constitutional issues at the heart of the vote and the differing claims made over whether independence will be a positive or negative for the Scottish economy, the fact is that markets simply hate uncertainty. This is the overriding factor driving the turbulence in the exchange rate and certain Scottish shares this week. Until recent days the scenario assumed by most investors was that a “no” vote would be the likely outcome.

“While the result of the vote itself next week will likely prompt a knee jerk reaction from the markets, whichever way the result goes, uncertainty could prevail for some time in the event of a “yes” vote as the UK and Scottish governments enter a period of horse-trading to reach a ‘divorce’ settlement.

“There are of course many questions that would need to be answered through such a process including the vexed question of which currency an independent Scotland would have, how the national debt and North Sea oil revenues would be split, the division of military and all manner of other details including who would regulate financial services in an independent Scotland. There is also the question of whether an independent Scotland would remain in the EU. With March 2016 as the potential date for independence, preparation time for a resolution of these issues would be incredibly tight by any measure.

“But a “yes” vote would also have the impact of fuelling political uncertainty over the rest of the UK. There could be pressure on the Prime Minister, and possibly the Leader of the Opposition, to resign and regardless, there is a May 2015 UK General Election, the outcome of which could be determined by MPs elected to Scottish constituencies.

“Those constituencies would potentially dissolve less than a year later, possibly resulting in a change of UK Government or fresh elections. That would add further uncertainty over the future direction of the UK, adding pressure on sterling. The cost of capital both in the remainder of the UK and an independent Scotland would also likely rise. That would clearly present economic challenges, though some exporters may benefit from a weaker pound making it difficult to generalise. The impact is potentially greater amongst more domestically focused small and mid-sized companies.

“It is worth pointing out that the overall UK stock market is very international in nature. An estimated ~70% of the earnings of the companies in the FTSE 100 Index are currently derived outside of the UK. Here, factors such as the oil price and growth rates in emerging markets are arguably much more important drivers than the UK economy or its governance. Indeed the translation of international earnings into sterling denominated dividends could benefit UK based shareholders against the backdrop of a weaker pound.

“Whatever the outcome next week, change is coming to Scotland as the Better Together camp offer of greater powers of tax and borrowing to Scotland should it remain in the UK. Under either scenario; independence or greater devolution within the UK, taxation rates in Scotland will likely diverge from those of the rest of the UK over time. This will require an ability to assist Scottish clients with their financial planning needs that understands and reflects the differences that will arise. With offices in Edinburgh and Glasgow, we are committed to supporting our Scottish clients whatever the outcome of the vote next week.”

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Important information:

This article is not advice to invest, or to use any of our services. The value of investments, and the income derived from them, can go down as well as up and you can get back less than you originally invested. Prevailing tax rates and reliefs are dependent on your individual circumstances and are subject to change. Different funds carry varying levels of risk depending on the geographical region and industry sector in which they invest. You should make yourself aware of these specific risks prior to investing.

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About Tilney Bestinvest

Tilney Bestinvest is a leading investment and financial planning firm that builds on a heritage of more than 150 years. We look after more than £9 billion of assets on our clients’ behalf and pride ourselves on offering the very highest levels of professional client service with transparent, competitive pricing across our entire range of solutions.

We offer a range of services for clients whether they would like to have their investments managed by us, require the support of a highly qualified adviser, prefer to make their own investment decisions or want to take more than one approach. We also have a nationwide team of expert financial planners to help clients with all aspects of financial planning, including retirement planning.

We have won numerous awards including UK Wealth Manager of the Year, Low-cost SIPP Provider of the Year and Self-select ISA Provider of the Year 2013, as voted by readers of the Financial Times and Investors Chronicle. We are pleased that our greatest source of new business is personal referrals from existing clients.

Headquartered in Mayfair, London, Tilney Bestinvest employs almost 400 staff across our network of offices, giving us full UK coverage, and we combine our award-winning research and expertise to provide a personalised service to clients whatever their investment needs.

The Tilney Bestinvest Group of Companies comprises the firms Bestinvest (Brokers) Ltd (Reg. No. 2830297), Tilney Investment Management (Reg. No. 02010520), Bestinvest (Consultants) Ltd (Reg. No. 1550116) and HW Financial Services Ltd (Reg. No. 02030706) all of which are authorised and regulated by the Financial Conduct Authority. Registered office: 6 Chesterfield Gardens, Mayfair, W1J 5BQ.

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This release was previously published on Tilney Smith & Williamson prior to the launch of Evelyn Partners.