Fears on Wall Street that the United Kingdom may become the first country to vote to leave the European Union are increasing, pushing other global worries like China and oil prices lower.
These days, Wall Street has plenty to worry about. The year started with the slowdown of Chinese economic growth and oil prices plummeting to their lowest in years. The global stock market entered a dramatic decline as investors expressed their anxiety about China’s economic future and the effect of crude being $26 a barrel on the world economy. At the beginning of the year, the Dow lost 1,000 points in its first week and remained volatile until February.
Now, oil is inching towards a strong recovery from the lows this year, hovering near $50 a barrel. The worth of China’s yuan currency hasn’t fallen off a cliff like many feared, and its economy seems to be stabilizing. But worries over a potential Brexit have replaced these outdated concerns, as a British referendum next month to decide whether to stay in the European Union looms. While experts are saying that a Brexit would undoubtedly bring big changes, what worries investors the most is the sheer uncertainty of it all.
“It’s a big concern: I don’t know what unravels positively or negatively,” Tim Anderson, the managing director at MND Partners, told CNN Money.
Anderson added that whether fears of a Brexit are largely warranted or not, the measure passing would certainly lead to volatile markets. Even expert economists are divided on what a Brexit could mean for the world, CNN noted.
“There are a lot of unanswered questions about how Brexit would impact the European financial system, most of which is based in London, and the global economy. Some economists believe the concerns are overblown because even if voters choose Brexit, the actual separation won’t take place overnight. The exit would take place over two years of complicated talks.”
The effect of a Brexit on the economy of the U.K. has become the chief battleground between the two sides of the fierce debate in the country. The U.K. Treasury recently released an analysis warning that a Brexit could lead the British economy into a recession and would trigger an “immediate and profound economic shock,” according to MarketWatch.
“The Treasury’s latest analysis adds to warnings over the potential cost of Brexit from the Bank of England, the International Monetary Fund and the Organization for Economic Cooperation and Development. Proponents of quitting the bloc dispute such claims, saying that any disruption following a vote to leave will be short-lived and that the U.K. will ultimately be better off outside the EU, where it will be free of burdensome EU regulation and can pursue its own trade deals with faster-growing parts of the world.”
The referendum vote also occurs one week after the meeting of the U.S. Federal Reserve in June. If investors are spooked by the possibility of a Brexit that month, it could have an effect on the decisions of the Fed, which could cause market reactions of its own.
Still, not all speculators see the potential volatility as a negative thing. Scott Wren, a senior global equity strategist at Wells Fargo Investment Institute, told CNN that if U.S. markets tank because of Brexit worries or because Brexit becomes a reality, it would be a good opportunity to buy.
“If the U.K. did exit, there would certainly be some turmoil and uncertainty,” Wren said, adding that for markets globally, “I would have to question the long-term impact.”
Wren also added that while a Brexit would certainly provoke sudden changes in the market in the short-term, in the long-term, U.S. investors shouldn’t worry. The United States has low, yet steady economic growth. Regardless, Brexit worries are a top priority on Wall Street, as CNN noted.
“Brexit is among investors’ top concerns for now. Anderson of MND Partners puts it in his ‘top five concerns.’ But almost everyone agrees it doesn’t have the long-term impact that China and oil prices could have. In the long-term, those remain the top-tier fears.”
The referendum vote on whether to stay in the EU takes place in the U.K. on June 23, 2016.
[Photo illustration by Christopher Furlong/Getty Images]