Foreword
This is a quick note, which tends to be just off the cuff thoughts/ideas that look at current market situations, and to try to encourage some discussions.
While I try to stay away from politics, sometimes politics is just being a jerk and does things that affect our pretty, pristine (ahem) financial markets. This time we look across the pond, at the UK, specifically the Scottish elections.
As usual, a reminder that I am not a financial professional by training — I am a software engineer by training, and by trade. The following is based on my personal understanding, which is gained through self-study and working in finance for a few years.
If you find anything that you feel is incorrect, please feel free to leave a comment, and discuss your thoughts.
Scottish elections 2021
The Scottish elections for 2021 has just ended, with all results having come in. The Scottish National Party (SNP) won 64 seats, 1 more than the previous 2016 elections, and just 1 seat short of an outright majority. More importantly, the Scottish Greens won 8 seats, up from 6 in 2016. Together, that’s 72 seats, an outright majority.
Why does that matter? Well, it turns out that both parties were heavily pro-independence (from the UK) in the last Scottish independence referendum in 2014. That time around, the vote was 55% against independence and 45% in favor.
With the improvements of fortunes by the SNP, Nicola Sturgeon, the leader of the SNP and the First Minister of Scotland, is making the case that another referendum is in order. And she sort of has a point — it does seem like the voters are leaning more towards independence, especially after the fiasco of Covid-19, and various other recent scandals plaguing the ruling Tories in London.
Bill Blain (another blogger I follow) has a take on this here. In that blog post, Blain lays out the point that this referendum matters, perhaps more than the Brexit one. In some sense I agree with him — if Scotland does indeed votes for independence, it’s going to make things interesting in the UK, if nothing else.
And now, here comes completely baseless speculation. As someone with a very obviously broken crystal ball, I cannot tell you what will happen. I can only guess, and I guess we’ll see what happens. A reminder that the following is based on the premise that Scotland does indeed hold a referendum, and the results are a strong yes mandate to independence — neither of these are guaranteed, but…
- Currently, the general view is that Scotland cannot stand on its own.
- However, crazier things have happened. Before their independence, many, too, thought that Singapore, Ireland, and a whole host of other nations could not stand on their own. These countries are still independent as far as I can tell.
- But more importantly, Scotland was strongly pro European Union, so there’s a good chance that an independent Scotland would seek to rejoin the EU.
- Which will make the whole issue of Brexit that much more contentious (yes, it’s “settled”, but they are still arguing about it).
- Right after Brexit the markets the world over took a huge dump.
- Most markets quickly rebounded, but GBPUSD remained heavily depressed.
- Other than a brief period around early 2018, GBPUSD hasn’t seen its pre-Brexit-vote highs until very recently.
- The UK stock markets were also severely affected, trading mostly sideways since the vote till today, in part due to the uncertainty.
- With many, many roller coaster moments every time there’s another news cycle about the latest UK/EU talks.
So, given what we have observed so far, it seems like if the Scots voted for a strong independence mandate, then,
- The Scottish land border with the UK will likely become an issue if Scotland also votes (and is accepted) to rejoin the EU.
- There will likely be another period of uncertainty in the UK stock markets, likely lasting for years (again).
- There’s a good chance that GBPUSD will take another huge dump, and then go into roller coaster mode for years (again).
- These are especially if the Remainers take up their cause again, and try to somehow undermine and/or force a renegotiation of the current Brexit deal between the UK and EU (which they’ll likely have to renegotiate anyway, due to Scotland’s land border).
- All of which suggests that maybe global stock markets will take another bath.
- Whether they’ll recover as quickly and as strongly as after the 2016 Brexit vote is unclear — stock markets the world around are a lot more fragile currently than in 2016.
What should I do!?
I don’t know. I’m a software engineer, remember? Also, all the above are hypotheticals. They may not happen.
But it’s just another “something interesting” to think about and watch out for.
Janky Thoughts 