By Tricia Wright and Vincent Flasseur
LONDON (Reuters) - With only weeks to go before Scots vote on independence, Scotland-based stocks are reversing months of underperformance as investors take a sanguine stance on the impact of a potential break-up of the UK.
This is as much a reflection of the marginal exposure of UK stocks to Scotland, with only 12 companies on the FTSE 350 index based north of the border, as it is about investors' belief that Scots will prove the pollsters right and vote not to split.
The performance of stocks headquartered in Scotland - excluding listed investment trusts - began to lag the broader FTSE 350 last October but has clawed back much of this underperformance since May, according to data compiled by Thomson Reuters.
The lag, though small and at its narrowest in almost a year, does remain: the basket of stocks including insurer Standard Life, soft-drink group AG Barr and engineering firm Weir Group is up 17.6 percent in that time, compared with a 19.5 percent gain for the FTSE 350.
There are clearly other issues at play for these stocks besides the referendum - Edinburgh-based oil firm Cairn Energy reported a loss for the first half of the year and is down some 30 percent on the year-to-date - but some have warned of the risk of increased compliance costs and contingency plans.
Several polls have shown support for independence pushing higher, but the most recent "poll of polls", on Aug. 15, which was based on an average of the last six polls and excluded undecided respondents, found support for a breakaway stood at 43 percent against 57 percent for remaining within Britain.
Investors said the impact of a "yes" vote on Sept. 18 was hard to quantify and thus hard to create an overarching strategy around, even disregarding the probability of the outcome.
"There is too much uncertainty to do anything concrete about it in terms of trading strategies," said Veronika Pechlaner, head of global equities at Ashburton.
BITTER TASTE?
Strategists and analysts warn that a "yes" vote could mean big changes ahead for some companies.
Banks such as Royal Bank of Scotland and Lloyds have already said that an independent Scotland could have a significant impact on compliance costs, taxes and credit ratings, and Scotland's asset-management industry would also be exposed.
It could also leave a bitter taste for top whisky producer Diageo. Scotch whisky is Scotland's second-largest export industry after oil and gas, according to Barclays.
On the other hand, a beneficiary of independence could be the transport industry as the "Yes" campaign has pledged to halve air-passenger tax.
But even taking into account the variety of possible scenarios, it is hard to avoid the fact that estimated FTSE 350 revenues that come directly from Scotland are around 2 percent of the total - perhaps too small to aggressively trade around.
"It's certainly something that (clients) are interested in ...(but) I wouldn't say there's a lot of action taking place," said Ian Scott, strategist at Barclays.
Listed companies with Scottish headquarters include temporary power provider Aggreko and bus and train operator FirstGroup.
Scotland-based broker Speirs & Jeffrey said there were no trading strategies in place to prepare for the referendum but that they had opened bank accounts in England and sent out letters to their clients informing them of contingency measures.
(Reporting by Tricia Wright; Graphic by Vincent Flasseur; Editing by Lionel Laurent and Gareth Jones)