Even if the UK votes to stay in EU, the concessions that the UK has negotiated with the EU might complicate extra EU integration. Britain's exit from the EU will hit the UK and also Europe. If the UK exits, EMU GDP is expected to lower by 0.8pp by late 2017 in a 'medium stress' scenario. Meanwhile, in a 'high stress' scenario, the GDP will be 2pp lower by the end of 2017.

Amongst the nations in euro area, Ireland will have the highest exposure, while Germany, the Netherlands and Belgium will also have sizeable risks. There might be an increase in political risks if protest parties are spurred by the Brexit.

Meanwhile, the CEE nations will be exposed mainly through trade. Trade connections between the emerging markets in Europe and the UK are not large. The main spillovers from Brexit will come through a euro area shock.

"We estimate that if the UK leaves the EU, CEE GDP would be hit by a cumulative 0.7pp by end 2017. In a 'high stress' scenario, the hit to GDP growth would be around 1.9pp, similar to the eurozone, though less front-loaded", says Morgan Stanley.

Economies like Hungary and the Czech Republic seem to be most exposed. Meanwhile, nations such as Romania and Poland seem to be more protected, partially because of supportive fiscal policy. If the UK leaves EU, MSCI Europe can plummet 15-20% with UK, periphery and Eastern Europe underperforming core nations and other euro-outs. The largest underperformers will most likely be financials, whereas internationally exposed defensives and large-caps are expected to outperform.

Meanwhile, there will be a higher FX volatility if Brexit takes place. Investors are mostly expected to question the stability of the entire European project. The British pound is expected to depreciate but gain against the EUR. Meanwhile, on the rates front, peripheral sovereign credit curves are expected to flatten if UK exits EU. Euro gamma is expected to outperform, while Eonia/Euribor are likely to widen.

In credit, UK's exit is expected to increase peripheral risk premia in credit markets, resulting in underperformance of financials versus non-financials. Meanwhile, investor focus shifts to Brexit's impact on European asset pricing. PLN, EUR and HUF are expected to weaken alongside GBP if UK exits.