A massive storm cell is building around the UK referendum on EU membership and its ramifications are creating fear on global financial markets.

But Australian stocks shrugged off fears about the potential of a UK divorce from Europe, rising a solid 1.1 per cent in early trading.

The ASX 200 index was up 56.2 points to 5219.3 points. The Australian dollar was up 0.1 per cent to 74 US cents.

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With polling booths closing at 10pm on June 23 in Britain, whether the storm makes landfall or dissipates may not be known until early Friday morning (Friday afternoon AEDT) — or even later if the result is close — so a full week’s anxiety is pretty well assured.

Fear is the dominant sentiment given markets have not exactly re-established solid foundations since the GFC.

The fear index is increasing as opinion polls shift more towards Leave rather than Remain.

However, betting markets are taking their lead from the smaller, less significant vote on Scotland bailing on the UK, where a sizeable undecided vote swung behind the status quo on voting day.

The immediate impacts of a Brexit would be fairly obvious; share markets would fall, so would bond yields as investors scramble for safety — even if that means accepting returns around zero or below.

The pound would tank, as would the Euro, the US dollar would rise as would probably gold.

AMP strategist Shane Oliver noted the real concern globally was that a Brexit could reignite concerns about the credit worthiness of debt issued by peripheral countries.

This would likely lead to a flight to safety out of the Euro into the US dollar, which could in turn put renewed pressure on emerging market currencies, the Renminbi and commodity prices.

“And then we are back in the turmoil we saw earlier this year,” Dr Oliver said.

In or out of Europe? Photo:Getty

Brexit manageable: Citi

Longer term is more difficult to gauge, although Citi’s Paul Brennan has put together a tidy list of possible impacts on Australia.

“We estimate the direct trade and investment consequences for Australia of Brexit would be manageable, but financial market and confidence impacts could be more substantial,” Mr Brennan told clients in a research note.

Trade

The expected depreciation would translate into a 30 to 40 per cent reduction in Australia’s exports to the UK and EU.

However, this would only represent around a 2 per cent reduction in Australia’s total global exports.

“This is more than manageable,” Mr Brennan noted.

Banking

Data for December last year from Australian Prudential Regulation Authority (APRA) and the Reserve Bank of Australia (RBA) showed the UK accounting for 18 per cent of Australian-owned banks’ international exposures.

This was the third-highest concentration after Asia and New Zealand.

“However, the data predated the demerger of NAB’s Clydesdale subsidiary earlier this year,” Mr Brennan said.

“This resulted in an almost-halving of Australian-owned banks’ UK exposures, which would mean that Australian-owned banks are now less exposed to the UK than they are to the US and Europe.”

Investment

The UK currently accounts for 10 per cent of foreign direct investment (FDI) in Australia (behind both the US and Japan) but is shrinking as historical ties unwind.

Investment by Australian firms into the UK accounts for 15 per cent of direct investment abroad (DIA), compared to 6 per cent for the rest of the EU.

“A Brexit outcome will likely have a limited impact on FDI given UK firms have been withdrawing investment from Australia in recent years,” Mr Brennan said.

“However, the impact on DIA could be significant, as Australian firms are likely to be more hesitant to invest in the UK.”

Of course the Brexit would have wider implications.

“A vote for Brexit could see markets anticipate the risk of similar campaigns elsewhere in the EU, thereby raising the political, economic and financial consequences,” Mr Brennan said.

As for monetary policy Mr Brennan said the Reserve Bank would still be likely to remain on the sidelines next month, pending fresh consumer price data, but a Brexit vote would add to the case for a cut in August if underlying inflation dipped lower.

The RBA June meeting minutes will be released on Tuesday, and several officials are out on the speaking circuit.

The message is expected to continue the RBA’s relatively upbeat view of the economy, rather than dwell on the perhaps surprising omission of a rates cutting bias in its last statement.

Overseas, Federal Reserve chair Janet Yellen delivers her two-day semi-annual Congressional Testimony on Tuesday and Wednesday.

It is unlikely there will be much of a departure from her recent post-Federal Open Markets Committee meeting media conference that was fairly balanced and not overly “dovish”.