The FTSE 100 could lose around a fifth of its value if the UK votes to end its membership of the European Union on Thursday, according to analyst research compiled by UBS.
The investment bank’s examination of analysts’ forecasts of what an exit from the 28 member bloc would mean for the markets does not make good reading for Boris Johnson and his colleagues in the Leave campaign.
The worst case scenario for London’s Blue chip index is that it could fall by 21.4% to 4,900 points in the event of a vote to leave, more popularly known as ‘Brexit’.
A vote to remain could bring more stability to the FTSE, which would be expected to trade between 6,200 and 6,800 points, compared to the 6,237 at the time of writing.
‘Following the risk-rally of the last few days, we believe there is significant room for downside in the event of a "Leave" vote,’ UBS said in the report.
The bank’s own models are more conservative in the event of a Brexit than the views of the analysts. It believes that the FTSE could only lose as much as 19% of its value to trade around the 5,075 mark.
UBS says that another impact of a vote to leave will be on currencies. ‘While sterling may come under significant pressure, the euro may be more stable,’ USB says. ‘Risk currencies (Swiss franc & Yen) would benefit, but policy responses could limit the degree of strength quickly.’
A look at the potential impact of the vote on oil in the research shows that analysts believe prices could fall to between $44 and $47, compared to the $50.6 price of a barrel of Brent Crude on Wednesday morning.
Gold and bonds issued by the UK government could become more popular if the UK decides to quit, the report believes.
Analysts point to the price of gold potentially rising to between $1,350 and $1,450 an ounce from the current £1,265 level, as investors rush into what are believed to be saver assets. The commodity will trade at between $1,200 and $1,270 an ounce if the UK remains part of the union, analysts believe.
Investors could also move their cash out of gilts in the event of a leave vote, which will see yields on 10-year Gilts contract to between 0.95% and 1.15% from the current 1.3% level, analysts’ believe.
The 10-year yield could rise if Britain chooses to remain to within the 1.25% and 1.40% range as lower volatility attracts investors towards other assets.