This might be the best protection if Britain leaves the EU
Riccardo De Luca/Reuters
As we get closer and closer to the EU referendum vote, analysts and investors are starting to pay attention to what a "Brexit" could mean for the markets.
But while many are focused on the euro and the British pound, a team at HSBC thinks that those trying to protect themselves against a Brexit would be wise to check out another currency: the Swiss franc.
"Being long the CHF may be the best hedge against 'Brexit,'" the HSBC FX Strategy team led by David Bloom wrote in a recent research report to clients.
"If 'Brexit' is rejected then the CHF is unlikely to weaken much as little political risk seems to be priced into the currency. If, by contrast, the UK votes to leave the EU, then the CHF would enjoy a sizeable safe-haven bid amid the scramble out of GBP and EUR," the team argued.
"This asymmetry makes the CHF the best choice as a hedge," they explain. "It would capitalise on 'Brexit' but not suffer should Britain choose to remain in the EU."
Some investors may be tempted to sell the British pound as a hedge instead. However, the HSBC team cautions against this because if the Brexit were rejected, then the pound would likely rally strongly.
Notably, the team concedes that the Swiss National Bank might intervene. However, they believe that ultimately a sustained intervention would be too costly.
In short, a "'Brexit' may never happen, but CHF is the appropriate FX insurance just in case."
Notably, the latest polls from the UK show suggest that the Brexit vote could be a close call.
The ORB poll for the Telegraph found last week that 51% of voters now support the Remain campaign, while 44% support Leave. However, 70% of Leave voters said they will go to the polling booth, while just 61% of remain supports said they would.
The Brexit referendum vote is scheduled for Thursday, June 23.