A major ratings agency, S&P, has warned that investments in European companies with exposure to the UK could be seriously impacted if the Brexit goes ahead.
S&P Global Ratings says that the short-term implication of a UK exit would be increased market volatility due to a potential sharp depreciation in sterling, affecting UK companies and European companies that do business with the UK.
S&P also repeated its warning made last year of a sovereign downgrade saying the Brexit situation is worsened by a lack of any blueprint for how the UK could exit smoothly from the EU.
Taron Wade, an analyst at S&P, claims the real danger comes in the longer term, where a Brexit would be sorely felt by corporates. “We believe the biggest risks for corporates would be the impact of a likely reduction in both domestic and foreign direct investment,” said Wade.
The report goes on to say that a lack of investment during this period would likely erode the competitive position of companies in certain industries – such as construction and aerospace & defence –and negatively affect revenues and profitability.
However, the impact of a Brexit would not be universal, according to S&P. Certain companies, such as those with less capital-intensive or more UK-orientated businesses, could be insulated from a move out of the EU.
The firm signs off its note positively. “We believe even industries affected by a Brexit would have the capacity to adapt, or even benefit, over time,” the report concludes.
Read about the Funds Europe Brexit debate here.
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