JPMorgan Says Euro Area to Be Key Equities Winner in Brexit Deal

(Bloomberg) — Euro-area stocks would stand to gain more from a Brexit deal by the end of this month than U.K. shares, JPMorgan (NYSE:) Cazenove strategists said.

While such a scenario would be bullish for domestic British companies, a strengthening of the pound would take away much of the upside for U.K. equities, strategists led by Mislav Matejka wrote in a note. Euro-zone shares, however, would be a “big potential indirect beneficiary,” they said.

JPMorgan on Monday reiterated its overweight stance on euro-area equities, while maintaining an underweight position on U.K. shares. In addition to a potential Brexit-deal boost, euro-area stocks are under-owned and trading cheaply on most valuation metrics, while speculation is mounting for fiscal stimulus in the region, the strategists said.

The U.K.’s benchmark has tended to move inversely to the pound since the 2016 referendum to leave the European Union, thanks to a heavy weighting of exporters that benefit from a weaker currency. Last week, a stronger pound and a slump in commodities dragged the gauge to its worst drop in almost a year.

JPMorgan’s base case is for the Oct. 31 deadline to be pushed out to January-February, with early elections likely, but the strategists cautioned that “one shouldn’t ignore the likelihood that Boris Johnson gets his deal through in October.”

Prospects of a breakthrough ahead of the deadline faded again over the weekend as talks between the two sides stalled. The EU has indicated that proposals made by Prime Minister Johnson last week to resolve the impasse won’t cut it.

The FTSE 100 has underperformed the this year amid lingering uncertainty about the timing and details of Brexit.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.