On the 26th of June the UK will hold a referendum on whether to stay part of the EU or again become an independent state.

 

Supporters of the exit say that it will help the UK with its immigration concerns, improving service delivery, as well as allow them to focus on their own issues. Some say that being part of the EU results in red tape that is slowing their economy.

 

While the exact effects are unknown, groups against a Brexit are claiming that there could be major job losses (500,000 to 800,000) and a sharp drop in GDP putting the UK into a prolonged recession. It could also result in a drop in property prices and UK stock markets. The Pound has already weakened in recent months but the IMF is warning that a Brexit could lead to as much as a 20% drop in the currency.

 

Currently about 4% of South Africa’s export trade is with the UK so this could lead to a possible 0.1% drop in SA growth.

 

Below is a graph showing the current polls for and against the Brexit. While it is predicted that it will probably not happen, it does depend on what demographic turns out to vote and the vote could be closer than we expect.

Source: Investec Asset Management

 

Our view is that Brexit is unlikely to happen but if it does our portfolios are generally well protected with low exposure to the UK. Any knock on effect to the SA economy would be small, but with our current growth rate so low any further problems will only make things more difficult.