Buying the Swiss franc may be the best hedge against the United Kingdom voting to quit the European Union (EU), according to HSBC — but not everybody agrees.
The British bank said the Swiss currency would likely rally strongly on a "Brexit," but would not weaken if the U.K. chose to remain in the 28-country political union.
The U.K. will hold a referendum on June 23, in which the electorate will vote on whether the country should remain in the EU or go its own way — the so-called Brexit.
"The CHF would likely rally on Brexit, given the political and European-centric nature of the crisis ," HSBC currency strategists, David Bloom, Daragh Maher and Mark McDonald, said in a report.
"The Swiss National Bank may intervene, but we believe it would only, at best, be able to slow the move rather than reverse it.
"However, were Brexit rejected, we would not expect maintenance of the status quo to provoke much CHF weakness. There is little evidence that CHF has priced in much Brexit risk, which means there is little risk premium to disappear. This asymmetry makes the CHF the best choice as a hedge."
Going long is when a currency or other security is bought in the expectation that it will rise in value and the investor will profit. A hedge is an investment taken to offset the risk of adverse movements in asset prices. (CNBC Explains.)
Unlike the U.K., Switzerland has never been part of the EU. The Swiss franc has gained over 5 percent against sterling this year and roughly 1.5 percent against the U.S. dollar.
HSBC said some investors might be tempted to short sterling — sell it in the anticipation that its value will fall — as a Brexit hedge. However, this would prove an expensive bet if the U.K. remained in the EU and sterling then rallied strongly — a likely possibility, according to Chandler.
However, Marc Chandler, head of currency strategy at Brown Brothers Harriman, said the Swiss franc could benefit from a "kneejerk reaction" in a Brexit, but that the effect would probably be short-lived.
"The best hedge is probably more direct — using options, including the knock-in variety, on the currency and rates may be a cleaner way to express view," he told CNBC on Monday.
A Brexit is generally viewed as negative for business, although a few corporate leaders have come out in favor. These include John Longworth, director general of the British Chambers of Commerce, who expressed support in a personal capacity for an exit earlier this month. He was subsequently suspended for violating the organization's neutrality and resigned.
In February, HSBC warned that it might shift 1,000 investment banking jobs to Paris from London if the U.K. left the EU.