(Bloomberg) -- There’s at least one potential winner from the chaos surrounding Brexit: The U.K. equity market.
It’s the only one globally that’s shrugging off falling estimates for corporate earnings growth, even as political worries batter the British pound, according to JPMorgan Asset Management.
“It’s the one market in the world where forecasts are going up,” Patrik Schowitz, global multi-asset strategist at JPMorgan Asset, said in an interview with Bloomberg Television.
The improved forecasts are largely a result of the falling sterling exchange rate, as the majority of revenues for companies in the FTSE 100 are generated overseas, he added. “If Brexit damages the U.K. economy that’s of secondary concern,” he said.
The British pound has fallen 1.7% against the U.S. dollar this year as Prime Minister Theresa May resigned after failing to pass a withdrawal agreement from the European Union and the chances of the country leaving the trading bloc without a deal on Oct. 31 rose.
The deteriorating picture for corporate earnings globally makes credit more appealing than equities, Schowitz said, as speculative buying raises valuations before the Federal Reserve’s meeting later this month. He expects the Fed to cut interest rates by 25 basis points at its July meeting and possibly again in September, but probably not more than that.
“If people are really basing their view on getting a big series of cuts, that’s where the disappointment potential lies,” he said. “To get that you would need to see a much bigger deterioration in the U.S. economy in particular, and to be honest markets wouldn’t like that.”
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