Strategists at Deutsche Bank and JP Morgan backed staying “overweight” on UK equities on Monday, even as fears over Britain’s vote next week on its membership of the European Union intensified volatility across world markets.
Deutsche Bank strategists said that British stocks would outperform the broader European market if Britain voted to leave the EU, partly due to an expected fall in the value of sterling.
“In the case of a ‘Leave’ vote in the UK referendum … we expect UK equities to outperform the European market, given the likely GBP (British pound) depreciation in such a scenario as well as the market’s defensive sector structure,” they wrote in a research note.
That view was echoed by JP Morgan.
“Brexit remains a clear concern, but GBP is a natural hedge for UK stocks, with 72 percent of sales derived from abroad. We would hedge out the foreign exchange risk, but believe that UK equities will hold out relatively better than continental ones in the event of UK leaving,” they wrote.
The latest probabilities from Betfair on the UK staying in the EU showed a slight dip to 68.5 percent on Monday from around 70 percent on Saturday.
Trade-weighted sterling hit an eight-week low and one-month euro/sterling option volatility hit the highest level on record on Monday.