Constitutional uncertainty in the UK, starting this year with the referendum on Scotland's future and culminating possibly with a vote on UK membership of the EU in 2017, could start to weigh on UK assets this year, according to Chief Investment Officer Haig Bathgate.
The country's unclear future will probably be reflected in declines for gilts and sterling, Haig said at a breakfast meeting on the investment implications of independence, organised by the Scotsman newspaper in conjunction with Turcan Connell.
Most of the uncertainty in Scotland is centred on currency. While the Scottish government is insisting that it will be able to share the pound with the remainder of the UK, all of the main political parties in London have said they're unwilling to let an independent Scotland into an agreed sterling zone.
Whatever happens to the currency, it's unlikely Scots will face any doomsday scenario that would see the newly independent nation's debt rating slashed and interest payments (and therefore corporate and individual borrowing rates) rocket. Whatever hand the Scottish government is dealt, they will want to keep the new environment as benign as possible, and if that means reining in spending so as to placate suspicious bond investors, then so be it (but as many people have cautioned, the first taste of independence will be to see just how limiting the effects of international financial markets can be).
Quite obviously, proponents of the"Yes" vote realise that their biggest burden is the inherent uncertainty of the move away from the status quo, and therefore anything they can do to reduce that uncertainty, whether keeping the pound or keeping UK financial regulation in place, should help them win over voters and investors.
The main message to emanate from the"No" side thus far is essentially to rebuff these overtures. But what is said in this debate should be taken with a small pinch of salt. One would expect those opposed to Independence to say things they think will persuade Scots to vote for the union. What the London parties say afterwards may differ from what was suggested in the heat of the debate.
This is not to say that the UK will say yes to allowing Scotland keep the pound or share its regulatory framework, but London will act pragmatically to look after its interests, and those interests may be best served by some sort of monetary and financial compact with an independent Scotland. That would indeed be the best case scenario, smoothing the transition for Scottish savers and for those who would invest in Scottish assets.
But as we have pointed out, should Scotland vote to remain in the UK, we're only at the beginning of a series of major constitutional issues which will continue to cast a pall of uncertainty over both UK assets and what UK investors should do.
This content was generated prior to Turcan Connell Asset Management Limited operating as Tcam.