Scottish independence: The new worry for equities. It always amazes me that equity traders tend not to pay attention to events until they are staring them in the face.
We have known about the Scottish independence referendum for over a year, but no one has paid any attention to it.
Until now. With 10 days to the vote on independence in Scotland, my email has filled up over the weekend about the new worry over Scottish independence.
What's the problem? To be fair, traders didn't pay attention because it looked like Scottish voters would vote to stay with the UK. But over the weekend, a respected poll (YouGov) showed a slim 51 to 49 percent "Yes" vote, with those saying they were undecided excluded.
This has driven the pound down against the dollar, with UK stocks weaker.
Why the worry? There is a lot of uncertainty here:
- Banks like RBS and Lloyds Banking are Scottish banks, they were bailed out by the UK government. What happens to them? How is this going to be settled?
- What about the North Sea oil? Chevron, Total and others have fields that conceivably could be claimed by Scotland. How will those taxes be divided?
- What happens to the debt? Scotland is about a quarter of the UK economy; if it leaves, should it assume 25 percent of the debt?
- Scotland has a high concentration of lawmakers belonging to the left-wing opposition Labour Party. If the country votes for independence, what's left of the U.K. would shift to the right, consolidating the power of the ruling Conservative "Tory" Party. Tory voters tend to be suspicious of the European Union and there will be more pressure for the UK to distance itself even more from the mainland.
See what I mean? Uncertainty.