Scotland Secession Vote Impact on Investments

October 5, 2014


Scotland voted to remain part of the United Kingdom on its independence referendum. According to The Guardian the results of the September 18, 2014 vote were 55.3% to stay and 44.7% to leave. The first reaction for many was a sigh of relief. If it had passed there were a number of concerns such as:
– Would Scotland keep the pound
– What about the euro
– Would Scotland join the European Union
– Who would get the oil and gas revenues
– How would the national debt be divided
– How would this change UK defense policies
– Impact on financial markets
These concerns would have rattled the investment markets on a large scale.

As the date of the election neared many polls indicated the result would be close. Some feel that the leaders of the Conservative, Labour and Liberal Democrat parties panicked. To entice Scotland to stay, they promised to provide Scotland with greater policy-making decisions, alterations to the constitution, and changes in the way states are governed. How these broad changes will be carried out has yet to be determined.

Some feel that the vote difference of 55% to 45% is decisive and that Great Britain’s recovery can now continue uninterrupted. Some further feel that this vote diminishes the chance of break-ups in other areas such as Catalonia breaking away from Spain, Flanders in Belgium, and Padania in Northern Italy, thus reducing uncertainty in world markets. This then allows the focus to shift to revitalizing their economies.

Others feel that the vote was close given the magnitude of the issue and that Pandora has been let out of her box. Another referendum could be called for in the future. Catalonia is having its own nonbinding referendum on independence in November. The impact of the promises made to Scotland is still being determined as well as the impact on political leadership.

While the referendum vote resolved some uncertainties, issues remain that bear watching.

Investment analysis and portfolio rebalancing require ongoing vigilance. The earliest economic impact is relief in the interest rate markets. Relief may enhance the UK’s equity markets. But it is relief, not euphoria. Although much uncertainty was removed, some of it was just postponed. A rate hike and a flatter yield curve is still expected by spring. Positive expectations for the UK equity market remain although much of the benefit of a continued union was already priced in. Valuations of individual companies can now be attuned more to their specifics.

We’re watching the impact that world affairs will have on different categories of investments from fixed income to equity to alternative investments and different sectors within these broad categories. We analyze the appropriate allocation of investments in your portfolio and make changes as events require.