It is a truth universally acknowledged that if the Scots vote Yes to independence on Friday, the FTSE 100 will crash.
Overseas investors have already pulled £16.6 billion out of the UK, in fear of the confusion that would follow the end of the 307-year union. Japanese bank Nomura has warned it would be a “cataclysmic shock”.
I have previously written that a Yes vote could be a great buying opportunity for long-term investors to pick up their favourite stocks on the cheap, provided they are able to hold them for several years, until the shock has passed.
But what would a No vote mean for the FTSE 100?
Kilt Yields
At first, it will be a good thing. A sporran full of uncertainty will have been removed, and the FTSE 100 is likely to breeze upwards when the results roll in.
With the index currently hovering around 6800, the sense of relief could easily push it above its 52-week high of 6878. And even beyond that, past its all-time high of 6930, achieved nearly 15 years ago on Millennium Eve.
So in the immediate aftermath, we could be looking at a new FTSE 100 record.
No Free Lunch
If that happens, I would countenance against joining the rush of happy pro-union buyers. Jumping on board any bandwagon is dangerous, especially this one.
That’s because a No vote isn’t a game changer, quite the reverse. All it does is restore the status quo. While the downside from a Yes vote could be messy and prolonged, I think the upside from No would be limited. It might last until lunchtime.
Then it’s as you were, and on to worrying about other issues.
Putin Is Scarier Than Salmond
Soon after the vote is in, investors will remember that a string of far more perilous events continue to overshadow markets.
The slow death of the eurozone, malevolent Russian intentions towards Ukraine and the merciless meltdown in the Middle East all threaten far more disorder than Scottish independence.
As Alex Salmond is alleged to have pointed out, David Cameron won’t invade Scotland, whatever the result. The same can’t be said for Vladimir Putin.
With Scotland back on side, markets will have time to worry about all of this.
The Rate We’re In
A No vote is also likely to bring forward expectations of the first Bank of England base rate hike.
If the UK stands better together and continues to have the fastest-growing economy in the G7, the base rate could rise in the spring. Maybe even before it rises in the US.
This could also prove a stock market headwind.
United We Stand
Yes or No, there is plenty of scope for long-term growth on the FTSE 100. It currently trades at an undemanding valuation of 13.68 times earnings, and yields a healthy 3.4%.
In the short term, a No vote would be far better for the FTSE 100, as it would spare us years of political grandstanding and economic horse trading.
But the uplift is likely to be shortlived. So think twice before diving into the inevitable relief rally.