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Should investors worry about the Scottish referendum?

Thursday 11th September 2014

A week today the people of Scotland will go to the ballot box to decide on the future of their country, consumer investment platform Trustnet Direct has taken a look at the impact of the referendum on investors:
Market volatility 
It's no secret that financial markets detest uncertainty, so it would be no surprise to see some skittish behaviour for London-listed stocks as the date of the vote nears. However, the FTSE-100 is nowhere near as inflated as equity markets across the Atlantic so once the verdict is announced – and the future roadmap better understood – the volatility is likely to ebb away.
This isn't the only current concern for markets, Scotland is just one of a number of “known unknowns” that the market is currently having to account for. Regardless of the verdict of the referendum, we have the prospect of war between Russia and Ukraine, the ongoing threat posed by events in Iraq, plus the risk of economic collapse in the Eurozone as just a few of the macro factors investors need to consider right now.
What does this mean for the Pound?
One of the prevailing themes of the independence debate has been what currency an independent Scotland would use. The UK government has taken moves to underwrite debt commitments but the uncertainty would likely see the Pound take a hit. Although this may be unwelcome for holidaymakers, we've seen no shortage of UK exporters note how the strength of sterling has hampered profits over the first half of 2014. A weaker Pound should be good news for UK plc.
The Pound and equity valuations
Similarly, a weaker Pound encourages overseas investors to buy up sterling denominated assets, so long term buy and hold investors again may find a sliver lining here.
Government borrowing costs
There's a good chance that if the vote for independence is successful, the UK will take longer to re-establish its AAA credit rating. Higher borrowing costs mean a bigger burden for the taxpayer, but also open the door for fixed-interest instruments to pay a higher return.
John Blowers head of Trustnet Direct, commented: “The Scottish Independence vote threatens to completely overshadow the news agenda and UK financial markets for the rest of the month, as we build up to the ballot and then dissect the result. However we believe there's little reason for most investors who have a degree of diversification in their portfolio to be concerned over the outcome in the short term. Those living north of the border will obviously have some decisions to make should the 'Yes' campaign win, but this isn't a case of capital controls coming in overnight should the nationalist campaign succeed.” 

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Editorial Contact Details - Conor Shilling
0845 672 6000
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