Brandywine Bets Big on Pound With $1.50 Post-Brexit Target

(Bloomberg) --

Brandywine Global Investment Management LLC has made a stronger pound one of its major bets, saying the currency is eventually poised to strengthen to $1.50 following a successful Brexit deal.

Sterling is set to rebound to that level within two years as sentiment toward U.K. assets improves once the Brexit turmoil has been resolved and as the dollar weakens, said Jack McIntyre, a portfolio manager in Philadelphia at Brandywine, which oversees $75 billion. Both the U.K. and European Union have plenty of incentives to reach a deal, he said.

“If we’re right about the dollar on a multi-year downtrend, then sterling could trade up to $1.50,” McIntyre said in an interview in Singapore. “The last thing the EU or Europe needs is a weak U.K. economy or a recession. They’ve got to get growth. Both the U.K. and EU have got to find some common ground.”

The pound has tumbled about 17% since the day before the Brexit referendum in June 2016 and touched a three-year low of $1.1959 last month. Sterling hasn’t been above $1.50 since early on June 24 when the initial results of the ballot came out. The currency traded at $1.2343 in Asian trading Friday.

Prime Minister Boris Johnson has been given a week by the EU to revise his Brexit deal or risk a postponement of the U.K.’s departure, three EU officials said, citing a meeting between diplomats. The U.K. is due to exit the bloc on Oct. 31, and Johnson has said he will never agree to delay Brexit beyond that date.

‘Buying Opportunity’

McIntyre said the pound would remain attractive even in the event of no-deal outcome. “If it’s a hard Brexit, sterling falls off sharply, that probably is a buying opportunity,” he said.

Hedge funds and other speculative investors remain bearish on sterling, holding a net 33,281 contracts betting the currency will weaken, according to data from the Commodity Futures Trading Commission as of Sept. 24.

The positioning doesn’t faze McIntyre, who is also keeping a close watch on the uptick in mergers and acquisitions in the U.K., which he views as another sign of growing confidence in the nation’s economy.

June and July were among the busiest months for mergers and acquisitions targeting U.K.-listed companies since the Brexit vote in 2016, with 25 deals pending or completed during the two months, according to data compiled by Bloomberg.

“We’re seeing a ramp up in M&A activity from non-U.K. companies investing in U.K. companies,” McIntyre said. While a cheaper currency will help attract overseas investors, “you wouldn’t buy a company just for that, you’re buying it because you have a longer-term positive view of the U.K.,” he said.

Here are some of McIntyre’s other investment views:

• Underweight dollar against Mexican peso, Brazilian real, and Australian and New Zealand dollars
• Company remains buyer of longer-maturity U.S. Treasuries although it trimmed some of its overweight positions in 30-year securities in August
• Favors Treasuries over European and Japanese government bonds
• Likes emerging-market local currency government debt, including those of Mexico, Brazil and Colombia

To contact the reporter on this story: Ruth Carson in Singapore at rliew6@bloomberg.net

To contact the editors responsible for this story: Tan Hwee Ann at hatan@bloomberg.net, Nicholas Reynolds

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