Brexit could trigger European stock market crash

How much UK really pays to be in the EU
How much UK really pays to be in the EU

Investors be warned! Stock markets could crash if Brits vote to leave the European Union later this month.

British stocks could lose as much as a quarter of their value if the U.K. chooses the so-called Brexit option -- according to a study by risk modeling company Axioma.

"There would be a market turmoil," said Bill Morokoff, head of research at Axioma. He conducted a "stress test" of a hypothetical portfolio made up of stocks (60%) and bonds (40%).

"Based on the stress test scenario, we expect a drop of 24% in U.K. equities over two to three months," he said.

A drop of that size would wipe hundreds of billions off the value of pensions and other investment funds.

Morokoff said European stocks could fall by about 20%, and Wall Street wouldn't escape either.

"There is a strong correlation with U.S. markets, so we could see an impact there too," he added.

Related: What if Brexit wins?

Brits will vote on June 23 on whether to remain a member of the EU. The U.K. government is campaigning to stay in. It says Brexit would hit trade and investment, triggering a recession, killing jobs and slamming the pound.

The Axioma stress test was based on market responses to big shocks in the past -- including the 2009 European debt crisis and "Black Wednesday" in 1992, when the pound crashed out of Europe's system of fixed exchange rates, the precursor to the euro.

The pound has weakened against major currencies since the EU referendum was announced, and has become increasingly volatile as the date of the vote approaches.

The U.K. stock market, by contrast, has remained relatively calm. Morokoff said the fall in the pound may have supported the market since it makes British stocks cheaper for foreign investors to buy.

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