Soros Says U.K. 'Brexit' Will Make Britons Poorer
London (Jun 21) George Soros warned that a U.K. vote to leave the European Union would hit the pound harder than Britain's abrupt exit from the European exchange rate mechanism in 1992, when the billionaire investor bet against the British currency.
Writing in the Guardian, Soros said a "Brexit" vote would trigger a "black Friday" for the U.K. -- without the export-spurring benefits that a lower pound brought after Britain's "black Wednesday" of Sept. 16, 1992, when it exited the ERM.
"Sterling is almost certain to fall steeply and quickly if leave wins the referendum," Soros wrote. "I would expect this devaluation to be bigger and also more disruptive than the 15% devaluation that occurred in September 1992, when I was fortunate enough to make a substantial profit for my hedge fund investors at the expense of the Bank of England and the British government."
While currency speculators might gain, a Brexit vote would leave "most voters considerably poorer," he noted
The pound was recently up 0.04% against the dollar at $1.4704, close to a one-month high after surging on Monday.
In his article, Soros said it was "reasonable to assume" the pound would fall at least 15% and possibly more than 20%, to below $1.15, which he noted "would be between 25% and 30% below its pre-referendum trading range of $1.50 to $1.60."
"Too many believe that a vote to leave will have no effect on their personal financial positions," he added. "This is wishful thinking. If Britain leaves the E.U. it will have at least one very clear and immediate effect that will touch every household: the value of the pound would decline precipitously. A vote to leave the E.U. would also have an immediate and dramatic impact on financial markets, investment, prices and jobs."
He also said the Bank of England wouldn't cut interest rates after a Brexit valuation, as it did in 1992, and again in 2008, because benchmark U.K. rates, which have been at 0.5% since March 2009, "are already at the lowest level compatible with the stability of British banks."
"That, incidentally, is another reason to worry about Brexit. For if a fall in house prices and loss of jobs causes a recession after Brexit, as is likely, there will be very little that monetary policy can do to stimulate the economy and counteract the consequent loss of demand," he noted.
He claimed that his prognosis was a "clear set of facts, based on my six decades of experience in financial markets."
Soros' intervention comes two days before the U.K. votes on whether to stay in the European Union and follows a day in which benchmark European equity indices surged more than 3% and the pound rallied on indications the "remain" camp had regained the momentum from "leave" campaigners in the Brexit debate.
On Tuesday a Daily Telegraph poll compiled by Orb suggested "remain" commanded 53% of the vote and "leave" 46%.
However, a YouGov poll for the Times gave "leave" 44% of the vote, to "remain's" 42%.
In Asia the Hang Seng was up 0.69% at 20,652.23 and the Nikkei 225 gained 1.28% to 16,169.11.
Source: TheStreet
