On 23rd June we will witness a major EU referendum: UK residents will vote to leave or remain in the union.
The latest polls suggest national sentiment is too close to call, so how should large asset management firms prepare for a possible Brexit? While most political and economic pundits have turned to historic precedents or fundamental trade analysis to form their opinions about the impact of a ‘leave’ vote, we have chosen to examine what today’s currency markets can tell us about the chances of a Brexit. Since such a decision would impact all financial portfolios, whether or not they are directly invested in European or UK securities, we formulated a series of market implied stress tests to help financial professions estimate the impact of a Brexit on their own funds. Our intention is not to make an argument for or against the UK remaining in the EU, as such analyses are more than readily available elsewhere, but rather to structure a framework for understanding what type of immediate financial impact can be expected from a vote to remain and from a vote to leave.
According to Bloomberg, the implied market probability of a Brexit is 37% (June 22nd 2016)
Take a look at the slideshare presentation below to explore a Brexit stress test, using StatPro’s powerful risk analytics, can paint a more accurate picture when the future is uncertain.