What's the day 1 scenario depending on the outcome?
Well, in the event of a 'yes', the immediate reaction is likely to be total panic. I am not sure this is a risk that is properly hedged in most investors' portfolios. Until the secession agreement is firmed up uncertainty will prevail, and that makes quantifying the impact on the economy - Scotland's or UK's - close to impossible. Higher Gilt spreads over Bunds or Treasuries, further Sterling weakness and a higher
UK risk premium hitting valuations of UK focussed companies are all likely. And the pensions are likely to bite too. Re-designation of national pension schemes to 'cross border' will require full funding status - and potentially large cash contributions will be required to get there.
Flip the coin. A 'no' vote presents a fantastic opportunity to buy UK domestic Cyclicals - or at the index level, the FTSE 250. These stocks have been de-rated twice this year - once on interest rate risk and latterly on this Scottish issue. As a result Valuations are looking very appealing now. Buy on a 'no'!
How far this extends across Europe is perhaps the most important question. Can the separation of countries within an EU member state be considered legal precedent? Is this formal acknowledgement of the right to self-determination?
It would not be too surprising to see Catalonia challenge Madrid's refusal to grant legal status to their planned November vote through the European courts. I suspect Spanish government bonds and equity prices will share some pain with their UK cousins on a yes vote. And from a medium-term perspective, this arguably makes a 2017 referendum on EU membership more likely - Labour will lose their Scottish MPs in March 2016 opening the door for the Conservatives to return to power. Without the pro-European Scottish voter base there is a strong chance we would opt out. There will be many people across Europe concerned about what that would do to the political balance within the EU.
All in all, which sectors are most exposed?
The impact on Financial Service has been well documented. Re-domiciling of Sottish Banks is likely. Personally, I am not convinced this is a big deal. They only have to hold board meetings in London. How many staff would move South is questionable. Similarly insurance companies and asset managers can easily set up UK holding companies to ensure their clients receive the same regulatory and fiscal certainty they have today. Some Utilities generation activities are exposed to the potential loss of UK subsidies. But there are deals to be done around such issues. Perhaps in reality it is companies that sell into Scotland that are most exposed should the economy take a hit.