Next Thursday's Scottish referendum will be close. But how should investors react to a vote in either direction?
When news broke earlier this week of the possibility of the "yes" camp winning, the shares of Scottish companies took a hit. Lloyds Banking Group and Standard Life, for instance, slumped by more than 2 per cent on Monday morning, while the Footsie fell 0.5 per cent.
One thing the market dislikes is uncertainty and some companies, such as the Scottish-based banks and insurers, have been forced to reveal contingency plans to relocate south if the "yes" voters prove triumphant.
But that may not stop the shares being hit further in the coming weeks, warns Juliet Schooling Latter, research director at the fund supermarket Chelsea Financial Services. "Financials such as Scottish Life and Aberdeen [Asset Management], along with utilities and energy stocks, seem to be the most vulnerable in the short term as so many changes would need to be made," she points out. "On the other hand, stocks like easyJet and Ryanair may benefit as the Scottish Government has said it will halve passenger duty if it gets a 'yes' vote."
Even a "no" could have a negative impact on some of the Scottish companies, warns Ian Forrest, investment analyst at The Share Centre. "Concerns about the disruption and distraction caused by moves of companies such as Royal Bank of Scotland, Standard Life, Aberdeen Asset Management and Lloyds Banking Group, allied to a probable economic impact on both Scotland and the remaining parts of the UK, could lead to volatility in both the stock market and the level of sterling," said Mr Forrest, but he added; "Even a close 'no' vote could cause some of these factors to play out as the markets would fear another vote in a few years." So a vote in either direction would leave uncertainty, which is likely to dent market confidence, at least in the short term.
However, a "yes" is most likely to leave traders uncomfortable, warns Tom Stevenson of Fidelity Personal Investing. "The principal concern for investors is not that Scotland could not be a viable country on its own –there are plenty of small countries which maintain a high standard of living and per capita income. Rather it is that a 'yes' vote would lead to 18 months of extreme constitutional uncertainty.
"For investors in individual shares, a 'yes' could have a serious impact on a wide range of sectors that include companies with a cross-border exposure. These include the banks most obviously, and the oil and gas sector. But defence, transport, asset management, utilities, insurance and property would also be significantly affected."
What about individual stocks to watch in the run-up to the vote. We asked John Blowers, head of Trustnet Direct, to come up with some picks.
His first choice is Fresnillo, the London-listed precious metals miner. "It receives virtually all its income in foreign currency. As such, when profits are repatriated back to the UK then the weaker the pound, as could happen after a 'yes' vote, the better the results look. A 'yes' could make this one to buy."
On the other hand, he thinks Standard Life could be one to sell because of the cost involved in relocating funds and parts of its business to England if there's a "yes" vote.
By contrast, the Glasgow-based power generator Aggreko gets the bulk of its revenues in foreign currencies, but its management has warned that independence would mean splitting the business in two. "There's also the risk that a Scottish failure to gain membership of the EU would disrupt its ability to export equipment," says Mr Blowers. "Although there are some benefits, the administrative cost of any change in structure needs to be considered."
Still confused about what to do? Most investors are. "This is a good time to ensure that your portfolio is well diversified and not over-exposed to any part of the market that might be seriously impacted by either possible result," suggests Mr Stevenson.
"Ensure investments are well spread between different assets, such as equities, bonds, commodities and cash."
Savings: Will a Yes vote hit me?
UK savers are unlikely to be affected. Fears that accounts with Scottish-owned banks or insurers could become less safe should have been allayed after most of the financial giants revealed plans to move south in the event of a "yes" vote.
If there was a new currency – which would introduce exchange-rate risks to savings accounts – it would be unlikely to come in for many months, giving worried savers plenty of time to make alternative arrangements, reckons the adviser Hargreaves Lansdown.
Meanwhile, savers shouldn't be too worried about their cash in the short term as the Financial Services Compensation Scheme has confirmed that statutory protections will remain during any transition.
Scottish residents with Isas could face losing the right to add to their tax-free pot, but existing savings shouldn't be hit and should remain free of tax, as happens with any UK resident who becomes an expatriate.
However any new Scottish tax rules could well be beneficial, so avoid making any panic decisions about savings.Reuse content