What To Make Of This 'Brexit' Chatter

In a new report, Barclays analyst Marvin Barth discusses three ways he believes the market may misjudge the UK’s upcoming referendum on EU membership.

First, while many outsiders see the vote as a UK-specific issue, the decision will have a much broader impact on Europe as a whole.

Second, Barth believes that the market may be underappreciating the risk that UK voters will choose to leave the EU and that immigration will be the driving force behind the vote.

“Because immigration also is the top political issue in the rest of Europe and because a UK exit would set an unwelcome precedent, we believe that the implications for the European Union (EU) and the European Monetary Union (EMU) are at least as important as for the UK,” Barth explains. He considers the vote as possibly the single biggest source of global economic risk in 2016.

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Finally, Barth believes the first key risk event will occur much sooner than the market seems to realize. Barclays believes that an immigration deal at the February EU Summit could pave the way for a June referendum vote.

The iShares MSCI United Kingdom ETF EWU is down 6.6 percent so far in 2016.

Disclosure: the author holds no position in the stocks mentioned.