No one knows yet which side will prevail in Thursday's referendum on U.K. membership in the European Union, but if votes to "leave" top those to "remain," financial markets are expected to tank.
"Markets haven't priced in any of this," says Jacob Kirkegaard, senior fellow at the Peterson Institute for International Economics, referring to a "leave" victory.
And the fallout could last for years, marking Brexit as the biggest shock to financial markets since the 2007-2008 financial crisis.
Polls from a day before the vote were too close to call – an online poll published Wednesday showed a "statistical dead heat," with 45% in favor of leaving and 44% for remaining, but London's famous bookmakers give favorable odds for the "remain" votes to win out.
Also favoring "remain" are the latest data from the U.K. Electoral Commission showing a record 46.5 million registered voters, suggesting a high 60% to 70% turnout that is expected to favor staying in the EU.
If "remain" wins, a mild relief rally is expected in global markets, then it's pretty much back to life before Brexit, though some analysts say the precedent-setting vote could inspire other EU members to hold their own referendums.
If it loses and Brexit wins, turmoil is expected to follow, both financially and politically.
For starters, the British pound and FTSE 100 index, which tracks the top 100 stocks listed on the London Stock Exchange, could plummet 20%, according to analysts, and ultimately, says Kierkegaard, a massive restructuring of global asset allocations would follow.
He says financial services companies operating in London, including non-U.K.-based banks that use London as a gateway for their European business, would be especially vulnerable.
(Check out all of ThinkAdvisor's news and analysis on Brexit.)
At the same time "safe-haven" assets like the U.S. dollar, gold and Treasuries could rally, as they did last week when sentiment was favoring a Brexit victory.
"The U.S. is still the safest place," says Simon Calton, CEO of Rycal Investment Group, based in southwest England but with offices in the U.S. "Invest in U.S. dollars … diversify and look for a long-term strategy."
Maxwell Gold, director of investment strategy at ETF Securities, says the biggest impact of a U.K. exit from the EU will be on currency markets which, in turn, is good for gold, but he doesn't expect the yellow metal will trade outside its recent $1,200 to $1,300 per ounce range. He favors the SGOL fund, which invest in gold bars.
The impact of Brexit beyond certain markets is not so rosy. The U.K. is a major trading partner of the U.S., which last year exported over $55 billion worth of goods to the U.K. and invested more than ten times as much, while the U.K. has invested about $500 billion in the U.S. and employs more than 1 million employees here.
Peoria, Illinois-based Caterpillar (CAT) is just one example of that two-way street. The heavy machinery manufacturer employees 9,000 workers in six plants in the U.K., which it uses as a gateway for exports throughout Europe.
