Stock markets around the world have been active as speculation mounts around a Greek referendum likely to be held on Sunday July 5th. With rumours and predictions of financial apocalypse running rampant, Colin Cieszynski looks at how stock markets have reacted to previous referendums and what we can take from these learnings. Within this report Colin discusses: • Independence referendums in other countries and how markets reacted • Constitutional referendums in other cases and how markets performed • Performance of Greek and German stocks heading into the upcoming referendum Independence Referendums Some have framed the Greece vote as a decision on whether the country should stay in the Eurozone or not which could possibly also lead to Greece possibly leaving the EU (although there are several countries in the EU that are not part of the Eurozone). Looking at past independence referendums held in Canada (Quebec) and the United Kingdom (Scotland), both of which ended with decisions to remain in their current federations.

Market Returns Around Big Referendums   Before  
 1 year6 months3 months1 month1 week1 day
       
Quebec Referendums on Independence      
May 20, 198029.17%15.69%(11.18%)4.47%3.13%0.29%
October 30, 19952.13%2.34%(4.98%)(3.31%)1.49%1.03%
       
Scotland Referendum on Independence      
September 18, 20143.98%3.24%0.60%1.16%0.29%0.58%

Source: CMC Markets, Bloomberg, L.P. The tables above and below show that the main impact of independence referendums was in the three months before and after the votes as other factors have had an influence over the longer term. In all three cases, by the final week heading into the votes, stocks were already on the rebound, suggesting that the markets had already discounted the results. Market performance following the three No votes was mixed. While there were relief rallies the day after the results, the positive impact on Canadian markets were much longer lasting than the impact on the FTSE following the Scottish vote. This could be due to a number of other factors influencing the market including the UK election campaign, moves toward a Brexit referendum and growing turmoil in the EU around the Greek debt crisis.

    After  
 1 day1 week1 month3 months6 months1 year
       
Quebec Referendums on Independence      
May 20, 19800.94%6.31%7.05%19.00%23.46%23.33%
October 30, 19951.81%4.82%6.43%13.88%17.51%27.65%
       
Scotland Referendum on Independence      
September 18, 20140.26%(2.64%)(7.46%)(5.18)1.85%(2.32%)

Source: CMC Markets, Bloomberg L.P. Constitutional Referendums The Greek referendum has also been framed by some as a vote on the latest EU proposal, which may not lead to a Grexit from the Euro or EU, so it could be seen as being more similar to the votes held on the European constitution in 2005 and the Canadian referendum in 1992. In three of the four cases below, voters refused to ratify constitutional deals. While stock market performance before these polls was mixed between the four countries, there was a sharp contrast in the performance afterward.

Market Returns Around Big Referendums   Before  
 1 year6 months3 months1 month1 week1 day
       
European Constitution Referendums of 2005      
France May 29 No13.12%9.29%2.58%5.63%0.85%0.00%
Netherlands June 1 No12.08%8.48%(1.07%)6.61%1.37%1.92%
Spain February 20 Yes16.18%24.17%10.96%6.13%(0.19%)0.00%
       
Canada Charlottetown Accord Referendum      
October 26, 1992(4.63%)(2.21%)(3.19%)(3.25%)1.55%0.89%

Source: CMC Markets, Bloomberg, L.P. The table below shows that in Canada, France and the Netherlands, the defeat of unpopular measures sparked stock market advances that drove their markets significantly higher over the following year. In contrast, after Spain ratified the European Constitution, its stock market fell for three months before rebounding perhaps suggesting a sign of trouble to come later.

    After  
 1 day1 week1 month3 months6 months1 year
       
European Constitution Referendums of 2005      
France May 29 No0.07%1.28%2.42%5.57%11.06%21.40%
Netherlands June 1 No0.27%0.27%4.58%4.85%14.82%18.87%
Spain February 20 Yes(1.11%)(1.37%)(3.21%)(2.11%)5.87%20.53%
       
Canada Charlottetown Accord Referendum      
October 26, 19920.34%3.18%(0.09%)1.13%12.46%27.85%

Source: CMC Markets, Bloomberg, L.P. Performance of Greek and German stocks heading into the upcoming referendum As Greek markets have been closed this week, I have looked at the performance of Greece ETFs that trade elsewhere. I have used market performance ahead of Sunday’s vote and compared it with results around last Saturday’s surprise decision to hold the referendum. Over the last year, Greek stocks have been fully crushed, suggesting that a Grexit and subsequent economic collapse appear to have already been priced in. This suggests that following an initial reaction to the result, Greek shares could rebound over time as traders stop worrying about what might happen and start reacting to whatever does happen. European shares, represented, by the Dax, meanwhile, have not fallen as much and could still be at risk depending on the events of the coming days. A result that solidifies the Eurozone could be beneficial but a result that weakens the Eurozone could have a more negative impact on European stock markets outside of Greece.

Market Returns Around Big Referendums   Before  
 1 year6 months3 months1 month1 week 
       
Greece EU Referendum      
       
Using GREK US ETF as a proxy for Athens index      
June 27, 2015 (announced)(47.78%)(20.30%)8.07%(5.99%)6.13% 
July 5 2015 (vote)(57.36%)(21.69%)(10.15%)(14.89%)(15.11%) 
       
Using LYX GRE GR ETF as a proxy for Athens index      
June 27, 2015 (announced)(40.53%)(13.74%)2.73%(8.13%)11.88% 
July 5 2015 (vote)(50.26%)(18.64%)(14.29%)(15.04%)(15.04%) 
       
Using DAX as a proxy for European stocks      
June 27, 2015 (announced)17.09%15.82%(3.17)(2.37%)4.09% 
July 5 2015 (vote)10.82%17.09%(7.31%)(0.94%)(3.48%) 

Source: CMC Markets, Bloomberg, L.P.

 After 
 1 day1 week
   
Greece EU Referendum  
   
Using GREK US ETF as a proxy for Athens index  
June 27, 2015 (announced)(15.11%) 
July 5 2015 (vote)  
   
Using LYX GRE GR ETF as a proxy for Athens index  
June 27, 2015 (announced)(15.04%) 
July 5 2015 (vote)  
   
Using DAX as a proxy for European stocks  
June 27, 2015 (announced)(3.48) 
July 5 2015 (vote)  

Source: CMC Markets, Bloomberg, L.P. CMC Markets is an execution only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.