Investors urged to ‘hold their nerve’ as Scottish referendum looms

The build up to the Scottish referendum has so far seen sterling slide and sparked warnings of capital flight from Scotland but some experts are encouraging investors not to make knee-jerk investment decisions ahead of the final vote this Thursday.

Signs of market panic over the outcome of the referendum began to emerge as polls showed a significant tightening between ‘yes’ and ‘no’ votes in the final weeks before referendum day.

Sterling and shares in some of Scotland’s largest companies all took a hit following one particular poll which showed the ‘yes’ vote ahead of the ‘no’ campaign for the first time.

Claims have also been made that investors are pulling assets out of Scottish-based fund groups while depositors are also said to be shifting money from Scottish to English banks.

However experts say now is not the time to making any investment decision based on the massive uncertainty that currently surrounds the immediate outcome of the vote and beyond if Scotland votes ‘yes’, such as the future of Scotland’s currency and EU membership,

Rowan Dartington Signature managing director Guy Stephens describes making an investment decision ahead of the vote as “gambling not investing”, although he does say that raising some cash before and after the final vote could “make sense” for some investors.

He says: “Any decisions this week in the UK are a punt on a binary outcome and that is gambling not investing. If common sense prevails then we would expect a rebound in Sterling and a recovery in affected stocks (note that there are few, if any, positive beneficiaries). Sterling has weakened by over 5% against the US Dollar since the end of June with almost half of that occurring since the 1st September.  The Euro is largely unaffected.
“We invest for the longer term so keeping some cash back in case a ‘Yes’ is returned may be wise and, similarly, if you need to raise some cash, doing half before and after the result would make sense.”

Tilney Bestinvest Glasgow managing director Paul Frame also urged investors to “hold their nerve” following the shock poll putting the ‘yes’ campaign ahead.

“Irrespective of where one stands on the great constitutional issues at the heart of the campaign, the simple fact is the financial markets hate uncertainty. Investors need to hold their nerve,” he adds.

Frame also points out that the recent turbulence in markets as a result of the referendum could continue for an extended period following the referendum, regardless of the final outcome of the vote.

He says :“While the result of the vote itself next week will likely prompt a knee jerk reaction from the markets, whichever way the result goes, uncertainty could prevail for some time in the event of a “yes” vote as the UK and Scottish governments enter a period of horse-trading to reach a ‘divorce’ settlement.”

Whitechurch Securities head of research Ben Willis has opted to build a bit of cash in portfolios too, but says there is no need for investors to panic.

He says: “There is no need to panic I think. One we don’t know what the outcome is going to be anyway to make a decision based on that and if Scotland does become independent it is not going to be a case of ‘I can’t get access to my money’, that would be ridiculous. But I can see why people are doing it because they don’t like uncertainty.

“We have only raised cash because we think the vote is too close to call. We don’t think the markets will fly away if its a ‘no’ vote but because they don’t like uncertainty there is likely to be more of an impact on the downside which could give us a good entry point to put that money back into the market.”