Passing Brexit Deal Seen as ‘Difficult Beast’ by Stock Investors

(Bloomberg) -- The U.K. stock market starts the week with one word on its mind: Brexit.

While Sunday’s European Union agreement to Theresa May’s plan provided a mild positive for British equities, the much tougher hurdle remains getting it through the U.K. Parliament.

Fund managers from Fidelity International to Joh Berenberg Gossler & Co. may have differing outlooks for U.K. shares, but they all agree that it’s best to stay cautious for now.

Here’s what strategists and money managers surveyed by Bloomberg had to say:

Leigh Himsworth, Fidelity International:

  • “At the current point in time, passing this deal is a very difficult beast to get through Parliament either at first or second reading.”
  • “In the near term, I think you’ve just got to err on the side of caution -- make sure you got some balance, make sure you do have some overseas stuff balanced with some more domestic stuff just in case sterling goes one way or the other.”

Alexis Charveriat, Financiere de la Cite:

  • “Mathematics leave us assuming that the deal in its current form will not pass, but at the very last minute the highly negative consequences of a ‘No Brexit deal at all’ can convince MPs to vote for the deal. So difficult to get a clear view in this political fog.”
  • “U.K. domestic companies are mainly small and midcaps companies and it is difficult to add risk in the less liquid names at this stage of the cycle.”

William Hobbs, Barclays Investment Solutions:

  • “The Parliamentary maths remains tight, but our read is that there remains very little parliamentary appetite for exiting the EU without a deal. The significant uncertainty that would accompany such an exit would, at the very least, be obstructive.”
  • “U.K. stocks are inexpensive, and this is no doubt in some part down to some form of Brexit discount. However, the latest moves in oil markets are also not helpful to a commodity heavy index such as the FTSE 100. Nonetheless, if the withdrawal deal makes it through U.K. Parliament in 2 weeks time, we would expect appetite for U.K. assets to recover somewhat, even in the face of a sterling headwind.”

Ulrich Urbahn, Berenberg:

  • It is consensus “that the first Parliament vote will be most likely be a fail. May has to fight on many fronts.”
  • If a deal is passed, “domestic U.K. stocks would outperform as they are not suffering from the pound’s appreciation. U.K. small caps, for example. But it really depends on the Brexit deal: if the soft Brexit happens, U.K. domestic stocks should outperform. But exporters would lose as a stronger pound should hurt their profit margins.”

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