Punters predict UK would vote to stay in EU

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While speculation around the Brexit (referendum on withdrawal of the United Kingdom from the European Union) vote made global financial markets wobble last week, punters are now betting on the possibility of the UK ‘staying in’.

Also Read: Will suffer if UK quits, EU nations warn

Till early last week, that possibility was seen as slim. According to Ladbrokes — a London-based online betting and gambling company — the probability of an exit till last week was over 40 per cent. Betfair, another London-based internet betting exchange, showed similar trends.

This, however, seems to have changed. Latest data (around 5:30 pm IST on June 21) from Ladbrokes put the probability of ‘staying in’ at 76 per cent. The going rate for this was 1/4. This means, if you bet Rs 1,000 on the possibility of the UK voting to remain ‘in’, a win will fetch you Rs 250 (plus the Rs 1,000 you bet). Till June 16, the probability of the UK ‘staying in’ was pegged at 64 per cent with a going rate of 1/2.

Also Read: Wall Street jumps at the open as Brexit worries ebb

There are only 24 per cent chances that the UK will vote for exiting the EU. The going rate for this on June 21 was pegged at 3/1, or 3. In this case, if you were to bet Rs 1,000, your win will fetch Rs 3,000. Till June 16, this was pegged at 13/8, or 1.625. In simple terms, lower probability of an event fetches higher return. Betfair expects 65-70 per cent of UK’s citizens to come out and vote. It also sees the probability of ‘staying in’ higher than ‘the exit’.

For instance, if you were to put Rs 1,000 on the possibility of the UK ‘staying in’, you will get a profit of Rs 280 (as on June 21). But, if UK decides to move out, you stand to lose the entire Rs 1,000. On the other hand, the odds for a UK ‘stay out’ is 3.5:1. So, in this case, if you were to bet Rs 1,000 on UK exiting the EU, and the same materialises, you stand to win a profit of Rs 3,500.

Also Read: Britain's rival EU camps resume campaign as polls show momentum for 'In'

The number of bets on the EU referendum has been huge, making it the biggest market for any political event in UK ever. According to reports, at least £30 million ($42 million) has already been bet, compared to £35 million bet on the 2014 FIFA World Cup. In another instance, the total bets for the outcome of the US presidential vote hit £40 million four years ago, according to reports, an amount that could yet be breached by Brexit bets.

TREND REVERSAL

The scenario has completely reversed from a week ago when the markets turned jittery on the back of an exit possibility. The sentiment, analysts say, changed after the assassination of Jo Cox, Labour MP for Batley and Spen.

Also Read: Mapping EU's Starfall

Jan Dehn, head of research at UK-based Ashmore Investment Management, explains: “Two things led to this change. Firstly, murder of a British MP by someone whose statements make it difficult socially to associate with the “Leave” campaign has increased odds that the UK will vote to remain within the EU. Secondly, the market simply got overly pessimistic and oversold.”

"As for the outcome, the polls show that voters want to leave the EU, but the bookmakers still believe that the "Remain" camp will win, because voters tend to vote more conservatively than what they say. If the UK exits, we will have a bit more volatility in the immediate aftermath, but I think the market then rallies simply because the uncertainty goes down, regardless of the outcome," he adds.

Also Read: What Brexit could mean for India

For Asian economies the impact on currencies, the euro more than sterling, and the possible impact on commodity prices are what will matter most, Eric Fishwick, head of economic research at CLSA says.

"Beyond the objective impact on pound sterling and euro, a Brexit vote would represent a shock to risk appetite. Occurring against a background where market concerns about US growth are rising, a Brexit vote risks contributing to a renewed period of commodity price weakness. Demand for the USD as a safe haven currency would increase the downward pressure on the pound sterling and euro," he says.

 


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