Perhaps it is not surprising that ahead of the looming Brexit vote determining Great Britain’s fate as a member of the European Union that the iShares MSCI United Kingdom ETF’s (NYSEArca: EWU), the largest U.K. exchange traded fund listed in the U.S., is a favored target of short sellers.
Additionally, currency investors have been actively trading on sentiment ahead of the Brexit vote through the CurrencyShares British Pound Sterling Trust (NYSEArca: FXB). Retail investors are betting on a weaker pound by shorting the currency through FXB. The targeted currency ETF has been a popular play among retail investors who do not want to deal with the hassle of directly shorting currencies or using derivatives and leverage in complex foreign exchange trades.
The Brexit is widely seen as a negative market catalyst. For instance, in a note, Richard Turnill, BlackRock Global Chief Investment Strategist, argued that the vote would likely send shocks through global markets, pressuring riskier assets like stocks and corporate credit, in the ensuing risk-off environment as concerns over political instability.
Polls have showed mixed results, with online surveys revealing a much closer result while phone calls have suggested a lead for a remain. Sterling has acted as a barometer of sentiment in the run-up to the June 23 referendum, hitting a seven-year low against the U.S. dollar in February after the date of the vote was announced.[related_stories]
The government and the Bank of England have both said that a Brexit would hurt the economy. Moody’s also warned that it could downgrade U.K.’s credit rating if the country leaves the union. By leaving the union, the UK would need to negotiate a new trade agreement with the EU that would preserve some of the trade benefits of EU membership.
“As the June 23 vote on European Union membership approaches, traders are increasing bearish bets on the biggest U.S exchange-traded fund tracking Britain’s shares. Short interest on the iShares MSCI United Kingdom ETF jumped eightfold in the past two months, according to data compiled by research firm Markit. Bank of America Corp. recommended last week that investors consider hedging as the risk of a Brexit isn’t evenly priced in,” according to Bloomberg.
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iShares MSCI United Kingdom ETF