Managers Sonja Laud and Merrick Styles said the easiest way to express a negative view of the UK was through the pound, therefore intended to remain underweight sterling across their multi-asset portfolios until they saw greater political stability and a clearer plan from the Conservative leadership.
In a recent note, the pair said: “For the time being, sterling is the only relief valve the UK has for a ‘hard Brexit’. The current government and its new prime minister are seemingly trying to be ‘all things to all people’. “The tough line on immigration has in turn provoked increasing hostility from EU leaders.
This suggests that the upcoming EU divorce negotiations could see a reduced chance of the UK maintaining free access to the single market.
”With the government seemingly focused on immigration policy, the UK’s business sector remains in the dark about its future prospects. It is commonly known that financial markets hate uncertainty, and this month’s Conservative party conference heard the new Prime Minister taking a tougher line on EU negotiations, pushing sterling to a three-year low against the euro.
They said sterling faced further pressure following May’s comments undermining the Bank of England and the tenure of the governor, compounding concerns over its current account deficit of £28.7bn. “The ‘flash crash’ further undermined confidence and showed that a sell-off in sterling and thin liquidity can trigger dramatic moves.
“Our multi-asset funds will remain underweight sterling until we see greater stability in the political situation and have more clarity on where Brexit is heading. As long as political risks and uncertainty remain elevated, it will be difficult to assess the fair value of the UK’s currency.”