The debate is fierce, with those wanting to leave arguing that the EU robs Britain of sovereignty and costs the country too much money. On the other side of the argument, those who want to remain in the 28-nation bloc are telling voters a Brexit will be hugely damaging to the UK economy.
Lots of the biggest banks have weighed in with their views on the potential impacts of Brexit, and Goldman Sachs is the latest to offer its opinion on what might happen if Britain severed ties with the European Union, focusing on the impact Brexit could have on the performance and share prices of the UK’s companies.
In a note titled “Brexit: Pricing, stock exposure and impact on Europe ” Goldman takes an in-depth look at what Britain leaving the EU could do to the biggest companies in Britain. According to Goldman, if you’re a bank, build houses, or sell household goods, things won’t be all that pleasant if Britain leaves the EU.
Goldman took a look at the sectors where earnings are most correlated to demand growth in Britain, arguing that the financial hit Britain may take after leaving the EU would be most concentrated, in the corporate arena at least, on banks, property firms, and household retailers.
At the other end of the spectrum, Britain’s already stricken mining and metals companies will get off relatively lightly, thanks to their huge exposures to economies outside of the UK. Here’s the sector-by-sector breakdown:
Along with sectors, Goldman also has bad news for specific British companies. Here are the ten the bank says could be worst hit by Brexit, and it doesn’t make pleasant reading for people involved in property (property firms are in bold):
- Travis Perkins
- Bovis Homes
- Intu Properties
- Barratt Developments
- Bellway Homes
- Berkeley Group
- Redrow Homes
- Great Portland Estates
- Land Securities
Not only could these companies take a big hit if Britain leaves the EU, Goldman Sachs says that the impact is already being felt. Here’s what analysts led by Sharon Bell have to say (emphasis ours):
The sectors most correlated to domestic demand tend to be financials, real estate, and homebuilders, with support services (logistics, staffing etc.) and travel & leisure in there too. The least sensitive sectors are generally those with lots of international sales — metals, tobacco, aerospace, media, and mobile telecoms.
We do the same thing at the stock level … Again, homebuilders, banks, real estate, and travel & leisure stocks feature predominately in this list.
This group of companies is down around 8% versus the market since the beginning of the year, more so than our UK domestic basket and more so than the FTSE 250 — again evidence of the market pricing in a significant Brexit risk, in our view.
The bank doesn’t provide any concrete figures on exactly how much Brexit could cost, but in its worst-case scenario, suggests that earnings across Britain’s big firms could fall as much as 13% overall, with the housebuilding and banking sectors presumably losing even more. Here’s Goldman one last time:
If industrial production were to fall by say 2.5% this would all other things equal push down FTSE 100 earnings by around 13% and FTSE 250 by around 18%.
Goldman is just the latest in a series of companies and advocacy organisations adding to what looks like a fairly gloomy picture for UK businesses if Britain does vote to leave on June 23. A couple of weeks ago Morgan Stanley warned Brexit could cause “contagion” across Europe, while HSBC said the impact could be “potentially huge.”
Earlier on Monday, the Confederation of British Industry, probably the most important lobbying body for British businesses, presented its “doomsday” scenario for Brexit, saying it could cost Britain as much a £100 billion, and nearly a million jobs by the end of 2020.