THE ramifications of potential Scottish independence permeate all aspects of social, political and economic life, writes Nick Williams, an Assistant Director at Brewin Dolphin in Newcastle.

Many consequences won’t be felt for months, even years, but those who want a more instant feel for whether the outcome will be good or bad south of the border will look to investment markets.

Share indices, whose fortunes are decided by a plethora of forces, haven’t been too twitchy, yet. With the vote seemingly a close run thing I wouldn’t expect the FTSE to have fully priced in one outcome or the other but uncertainty usually creates a degree of volatility.

The effects need to be split into two areas.

First, there will almost inevitably be short term distortions following the result, with their magnitudes dependent on the outcome. Predicting this is enormously difficult but I favour that in the event of a ‘no’ there will be a short relief rally in our major indices. This involves the least change and by consequence the least uncertainty. In the event of a ‘Yes’, our economic status quo dissolves and the accompanying opacity on key economic issues brings greater potential for volatility.

Second, and more important than any gut reaction, is the long term. Share valuations are driven by corporate earnings and the myriad economic factors that feed into them. Just 2 per cent of UK listed company revenues are Scottish, so the effects on earnings would not be insurmountable.

Further, Sterling, which government, Governor and distinguished economist alike have warned could not be officially retained by a separate Scotland, has fallen and will likely fall further in the event of a ‘Yes’. The FTSE100, and a good deal of the 250, have suffered lately as their significant overseas earnings have been translated back to a strong pound. A modest devaluation may be welcome.

Much hinges on an independent Scotland taking and honouring its fair share of the national debt. A failure to agree on currency could provoke Scotland into reneging and this would place a large burden on taxpayers in the rest of the UK.

We are still in the throes of fiscal austerity and this would have serious implications for growth and earnings. Given the uncertainty, markets also seem to have priced out a rate rise this year, but this may change once the outcome is known.

The pound, and UK-centric small cap shares appear to be most at risk from a ‘Yes’, but positives could also come from it for overseas earning blue chips. A ‘No’ would bring far less long term economic disruption and allow the market to shift its focus elsewhere.

Nick Williams is an Assistant Director at Brewin Dolphin and offers advice on a wide range of financial services to private clients, trusts, charities and pension funds.

Past performance is not an indication of future performance. The value of any investment and any income can fall and you may get back less than you invested. No investment is suitable for all people and should you have any doubts you should consult an authorised financial adviser.

The information contained in this article has been taken from public sources and is believed to be reliable and accurate, but without further investigation cannot be warranted as to accuracy or completeness. The opinions expressed in this article are not necessarily the views held throughout Brewin Dolphin Ltd. No Director, representative or employee of Brewin Dolphin Ltd accepts liability for any direct or consequential loss arising from the use of this document or its contents.