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Cape Town – As Britons count down the days to a referendum on whether to remain a part of the European Union (EU), countries like South Africa are weighing up the cost of either scenario.
The pound gained on Monday, spurring a global rally in higher-yielding currencies, as the first poll taken after the murder of pro-European Union lawmaker Jo Cox showed the campaign for the UK to remain in the trading bloc was gaining momentum. The referendum is on Thursday.
In volatile trade sterling retreated to a one-week low after a poll from Survation taken on June 17-18 for the Mail on Sunday newspaper showed “Remain” backed by 45% and “Leave” by 42%, reversing positions from Survation’s previous survey. At the end of last week the pound gained after campaigning for this Thursday’s referendum was suspended following Cox’s death. She was attacked on June 16.
“Weekend polls suggested the tragic death of Jo Cox may be shifting some support back to “Remain” - that has helped risk sentiment a bit,” said Robert Rennie, the global head of currency and commodity strategy at Westpac Banking in Sydney. “The polls are also driving the move away from safe-haven currencies.”
Sterling surged 1.7% to $1.4603 as of 13:22 in Tokyo, after advancing 1.1% last Friday to complete its first weekly advance this month.
Gordhan: Uncertainty could have serious impact on SA
Finance Minister Pravin Gordhan said the UK pulling out of the EU would “complicate life” for South Africa.
“It may not immediately impact negatively, especially on trade, but the uncertainty could have a serious impact on us as a country,” the Sunday Tribune quoted him as saying in Durban on Saturday.
Speaking at the same event, economist Dawie Roodt said a “Leave” vote would strengthen the euro and the dollar and weaken the pound and the rand.
Umkhulu Consulting’s Adam Phillips said on Monday that the volatility in the market is at “absurd levels” as a result of the Brexit vote.
“Every currency in the world is now affected by what is going to be decided on Thursday,” he said. “It might be that the Brexit vote still has a nasty bite to it that will affect the rand in the short term.
“Once the vote has been digested, we should start concerning ourselves with our (South African) local elections, which have been taking a back seat in the last couple of weeks.”
Odds are for a rand-positive “remain” vote, said RMB analyst John Cairns on Monday.
"A 'Leave' would have a much bigger result," he said. "It would push USD/ZAR up, we guess, by 3% to 5% as risk aversion spikes. GBP/ZAR would go the other way from USD/ZAR, pushing higher on a 'remain' and falling on a 'leave'. We expect EUR/ZAR to trade in the same direction as USD/ZAR, although not moving to quite the same extent."
Britain’s possible departure from the EU could shave about 0.1 percentage point off South Africa’s economic growth due to the nation’s strong trade ties with the UK and European Union, according to researchers from North-West University.
“With current growth in South Africa in 2016 expected to be close to zero, it is a loss in growth South Africa can ill-afford at this stage,” Raymond Parsons and Wilma Viviers, professors at the business school and trade research unit at the university in Potchefstroom said in an emailed statement.
Investor nervousness across the globe
The prospect of the UK exiting the world’s largest trading bloc has fuelled investor nervousness across the globe. The Federal Reserve said on June 15 the Brexit referendum was a factor in its decision to keep interest rates on hold.
Bank of England officials led by Governor Mark Carney left policy unchanged last week and said a vote to leave may damage the country’s economy and trigger further weakness in the currency.
A global bond rally sent yields on government bonds to record lows from the UK to Germany, Japan and Australia. The yen surged 2.7% last week and touched 103.55, the strongest in almost two years, as financial turmoil spurred demand for the currency as a haven.
Prime Minister David Cameron entered the final week of campaigning ahead of the referendum with an accusation that his opponents are trying to deceive people into voting to leave.
After two days when campaigning was suspended following Cox’s murder, Sunday saw both sides return to the fray.
Markets more comfortable with UK remaining in EU
The prime minister, taking audience questions on a BBC television special, criticised his opponents both over the tone of some of their anti-immigration messages and specific claims they’ve made.
The probability of a vote to leave declined to about 30% on Sunday from almost 40% on Wednesday, according to bookmaker figures processed by the Oddschecker website.
A survey by YouGov for the Sunday Times, a third of which was conducted before the attack, showed “Remain” on 44% and “Leave” on 43%. The pollster said it doubted the rise in backing for the EU was tied to Cox’s killing and suggested it may relate more to concerns about what Brexit would mean for the economy.
“The markets have always been more comfortable with the UK remaining in the European Union, hence the boost to risk sentiment now that the ‘Remain’ camp’s campaign appears to be back on track,” Kathleen Brooks, London-based research director at Gain Capital, wrote in a note.
Leaving the European Union (EU) would trigger a recession and set economic growth back by 6% - or £106bn (R2.3trn) by 2020, a report from the Economist Intelligence Unit revealed.
FULL STORY: GRAPHS: UK will lose R2.3trn by 2020 if Brexit occurs
