To Bremain or to Brexit, that is the question

Britain’s Brexit vote due on Friday, New Zealand time, on whether to remain in or leave the European Union is likely to continue to overshadow currency and share markets around the world this week.

Last week, the benchmark Top 50 Index shed nearly 1.8%, in line with falls on share markets globally, as polls indicate the British vote is likely to be close.

So far this month, the New Zealand dollar has risen 5.2% against the British pound and 3% against the euro as jitters about Brexit dominate trading.

The head of wealth research at Craigs Investment Partners, Mark Lister, says although financial markets will remain volatile ahead of the vote, if Britain does leave the EU, it won’t be a show-stopper for the New Zealand economy.

Nevertheless, it would dent some sectors and the impact would be material.

Britain “is our fifth-largest export market behind Australia, China, the US and Japan, taking 4.4% of our exports,” Mr Lister says.

“The rest of the EU represents 7.6% of exports, with Germany the largest trading partner.”

Britain accounts for less than 5% of foreign direct investment but is our fourth largest tourism market behind Australia, China and the US and represents about 15% of visitor spending.

The indirect impact on New Zealand is much harder to calculate.

“Leaving the EU is seen as a negative outcome for Britain economically and it would certainly be highly disruptive for financial markets,” Mr Lister says.

“This outcome would also raise questions over the future of Europe in its current form, something that is also weighing on markets and sentiment in the region.”

Migration figures due
Also due this week are migration figures for May, which will be closely watched with the annual net immigration currently running at a record 68,000 people – the annual total has set records for 21 consecutive months now.

“it’s a very important dynamic. Migration’s had a huge impact on the economy over the last few years,’ Mr Lister says.

“It’s boosted economic activity, it’s made a lot of our stats, our growth numbers look very, very solid, but it’s also put a lot of pressure on infrastructure and it’s kept wages low and it’s kept inflation low and therefore interest rates low,” he says.

“If it does reverse at some point, that could make some huge changes in our economy.”

Also due out this week are Westpac consumer confidence figures, the Performance of Manufacturing survey and ANZ jobs figures.

And on the corporate front, the newly listed Tegel will report its annual results on Tuesday.

Last week’s biggest moving stocks were A2 Milk, up 11.8% after a profit upgrade, and Coats, which is leaving the Top 50 Index, down 14.8%