Mid caps, financials and house builders will be the stocks most at risk in the event of Brexit, according to the firm.
Caroline Simmons, deputy head of the UK Investment Office at UBS Wealth Management, said companies and sectors with the greatest exposure to the UK economy will be the worst performers and markets will remain volatile and “sensitive to newsflow on Brexit during the lengthy campaign”.
Simmons noted that fears around Brexit have already been priced in to the market in the form of a weaker pound, and this could continue in the run-up to 23 June.
“While the FTSE 100 could experience some selling pressure due to its large international investor base, the currency boost to the large cap index from a weaker pound, combined with lower exposure to the UK economy will likely win out, leading the FTSE 100 to outperform the FTSE 250,” she said.
Within this prospective tumultuous few months for mid-caps some individual sectors will fare better than others, according to Simmons.
Banks, house builders, general retail and leisure will react most negatively to Brexit, she said.
“The banking sector is one of the most exposed to changes in the UK’s relationship with the EU. A widening of UK credit spreads, or a change in the UK sovereign credit rating, could lead to higher funding costs for the UK banks, which would lower margins and profitability,” said Simmons.
“Domestic and retail banks have a high exposure to the UK through corporate and retail lending – therefore, a decline in confidence and sentiment may lead to lower transactions and demand for banking services.”
“Since housing demand is driven strongly by consumer sentiment and by credit conditions, housebuilders, which have 100% UK exposure, would suffer if Brexit arose,” Simmons continued.
“Consumer sentiment would deteriorate, and the banks’ funding costs would increase, leading to a tightening of credit conditions.”
