Stocks to play the Brexit vote

TORONTO Britain’s June 23 referendum to decide whether it should remain in the European Union could be a source of volatility in global equity markets, but it is likely to have limited implications for U.S. investors as a whole given that the U.K. represents only about one per cent of S&P 500 revenues. However, there are plenty of U.S. companies with U.K. subsidiaries that account for a bigger portion of their business.

There is a significant divergence between individual polls, but an average of both online and telephone responses suggests “remain” is in the lead by four per cent, although the variance between these polls has risen in the past week.

Meanwhile, the average of bookmaker odds pegs the chances of the U.K. votes to remain in the EU at 80 per cent as of May 25.

JPMorgan Chase & Co. estimates that leaving the EU would reduce growth in the U.K. by about one percentage point and Europe as a whole by between 0.2 and 0.3 percentage points.

“The eventual outcome and spillover effects depend on the unknowable mechanics of the separation process and potential renegotiation of trade agreements,” Dubravko Lakos-Bujas, head of U.S. equity strategy at JPMorgan, said in a report. “The implications for U.K./ European economies after an exit would also likely

The eventual outcome and spillover effects depend on the unknowable mechanics of the separation process.

depend on the response of both the Bank of England and the ECB, which could results in further accommodative policy.”

Nonetheless, he believes the majority of U.S. companies with U.K. exposure are relatively insulated from the potential fundamental impact from a vote in either direction. From a sentiment perspective, however, the strategist thinks there are several stocks that could outperform if the U.K. remains in the EU.

Penske Automotive Group Inc. tops the list of U.S. stocks in terms of the most U.K. exposure in terms of revenue at 33.4 per cent.

Other names above 20 per cent include PPL Corp., PRA Health Sciences Inc., Invesco Ltd. and Xerox Corp.

Meanwhile, Ford Motor Co., eBay Inc., PayPal Holdings Inc. and Legg Mason Inc. are some recognizable companies that also made the top 22.

“While they would still be exposed to the secondorder effects of slowing U.K./European economies and currency fluctuations, the U.K. operations of U.S.based businesses tend to focus more on domestic end markets rather than trade or export out of the U.K.,” Lakos-Bujas said.