• Pound, euro may lose 10% in seconds on Brexit: Upadhyaya
  • European stocks at risk of similar decline, HSBC says

What if the bookies are wrong?

Hours before voting in the U.K. ends, with polls from previous days indicating a close race, financial markets are leaning toward an outcome where Britons opt to stay in the European Union.

It’s possible that investors are positioned the right way. But after pushing up global stocks this week and driving the pound to its highest level of 2016, those money managers face some pain if they wind up on the wrong side of the referendum results.

The pound and euro may drop 10 percent within seconds on a “Leave” victory, said Paresh Upadhyaya at Pioneer Investments. A measure of European stocks may tumble even more, according to HSBC Holdings Plc. In U.S. Treasuries, all-time low yields are possible, strategists at TD Securities (USA) LLC and Wells Fargo Securities LLC predict.

"The more we rally today, the harder we’re going to fall on a Brexit vote,” said Upadhyaya, director of currency strategy in Boston at Pioneer, which oversees about $236 billion. “The more we rally now, the less we rally tomorrow on a Bremain vote.”

Decision Time

Voters have until 10 p.m. London time to cast their ballot. The first results are expected around midnight, while the final ones are due at about 7 a.m. Friday. Bookmaker Paddy Power Betfair Plc said Thursday that the odds on a “Remain” vote had shortened to a 1/12 chance, indicating a 92 percent probability.

The pound gained 0.8 percent Thursday, reaching as strong as $1.4947, while the euro appreciated 0.5 percent to $1.1353 as of about 2:40 p.m. in New York. Both are approaching the limits of where they’d reach on a "Remain" rally, Upadhyaya said.

In other markets, yields on benchmark 10-year Treasuries have risen to 1.73 percent after touching 1.52 percent last week, the lowest since 2012. The S&P 500 Index and the MSCI Europe Index have advanced about 1.7 percent and 6.3 percent from the end of last week, respectively.

With a vote to stay in the EU, strategists at HSBC forecast a “muted relief bounce” in equities. The bank predicts the MSCI Europe Index may sink as much as 15 percent if the result goes the other way.

Haven Ripple

Yields on Treasuries, a haven for global investors, may set a record low within days on a Brexit win, strategists at TD Securities and Wells Fargo Securities predict.

The benchmark 10-year yield may slump as much as 0.40 percentage point in the following days, according to Wells Fargo interest-rate strategists. TD’s Gennadiy Goldberg said it may reach 1.25 percent. The record low is 1.38 percent, set in 2012.

“‘Remain’ appears priced into markets with high likelihood, especially after today’s moves in equities and Treasuries,” said Guy Lebas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia. “A ‘Leave’ vote would certainly catch risk-asset markets offside.”

Gold prices may rally 10 percent should the U.K. opt to exit the EU, Mark Keenan, head of commodities research for Asia, said on Bloomberg Television Wednesday.

“If they stay in, that’s going to be a non-event” for gold, said Jeffrey Nichols, a New York-based senior economic adviser at Rosland Capital LLC. “If they try to exit, we could have a very volatile reaction in financial markets, including gold.” 

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