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Evercore Sees Only Upside for U.K. Markets on Election Delay

Evercore Sees Only Upside for U.K. Markets on Election Delay

(Bloomberg) -- Things are looking up for the pound and U.K. markets now that Brexit is delayed until at least the end of January, with little downside risk to worry about, according to Evercore ISI.

“The range of Brexit outcomes in the months ahead is now largely confined to a base case of the Johnson exit deal and an upside risk case of a second referendum that might overturn Brexit following a win for opposition parties,” Krishna Guha and Ernie Tedeschi, analysts at the group, wrote in a note Monday.

Evercore Sees Only Upside for U.K. Markets on Election Delay

While the pound advanced on Monday after the European Union gave Britain three more months to sort out its exit from the group, at $1.2844 it remains well off its $1.3381 high for the year. And U.K. stocks are sitting on less than half the 2019 gains seen on the continent and in the U.S.

“Sterling and U.K. market are edgy about an election -- in part because of the variance of domestic political outcomes that could emerge in a hard-to-predict contest,” the Evercore analysts wrote.

Prime Minister Boris Johnson is set to try again on Tuesday to get Parliament to allow an early election, using an easier legal route than on previous occasions that ended in failure. That’s after he was unable to win passage for the Brexit deal he secured with the EU.

Guha and Tedeschi concluded the dynamics have now swung in favor of a December election.

On one hand, if Johnson secured a majority in the election, that could pave the way for lawmakers to approve his deal. And on the other, a win for the opposition could strengthen the hand of those wanting to remain in the EU.

“There is little downside risk to global markets and we think on balance upside risk to U.K. assets over a three- to six-month horizon,” Guha and Tedeschi wrote.

To contact the reporter on this story: Christopher Anstey in Tokyo at canstey@bloomberg.net

To contact the editors responsible for this story: Christopher Anstey at canstey@bloomberg.net, Joanna Ossinger

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