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JP Morgan: Markets underestimate a Brexit

david stubbs

JP Morgan Asset Management says the UK market is not fully considering the impact of a potential Brexit as we move closer to the European independence referendum.

Global market strategist David Stubbs says despite the overall belief that the UK will most likely stay within the European Union, the market is not pricing in the consequences of a possible exit.

He says: “I don’t think the market is pricing in the fact that we might leave. Market consequences could be significant.”

The EU referendum is set to be held by the end of 2017 and the vote was put in law by the EU Referendum Bill earlier this year.

However, there have been suggestions that it could happen in May 2016, to coincide with elections in Scotland, Wales, Northern Ireland and London.

Stubbs says “we will see market movements” a month before the referendum and the possible derating of the UK equity market.

“A Brexit is a real prospect and it is an issue for the UK. This country is going to have a hell of a fight; we don’t know how it is going to be,” he says.

As with the Scottish referendum held one year ago, when sterling lost 6 per cent, Stubbs warns the British currency might again suffer from the political uncertainties surrounding a possible Brexit.

JP Morgan, whose overall view is on the UK to stay within the EU, is not the only asset manager who is concerned about the sentiment surrounding the EU referendum.

Fidelity Worldwide Investment global economist Anna Stupnytska says the potential for a Brexit referendum to be held in 2016 instead of 2017 will “become an increasing source of uncertainty”, and will raise “UK vulnerabilities” in light of the wide current account deficit.

The UK current account deficit narrowed to £26.55bn in the first three months of the 2015 compared to the fourth quarter of 2014, but remains higher than expected.

The UK current account deficit was down from an upwardly revised £28.9bn in the final three months of 2014, but it still represents the equivalent of 5.8 per cent of the UK GDP, according to the Official of National Statistics.

Also, earlier this week, UK inflation slipped into negative territory again in September dropping to -0.1 per cent, suggesting the path for growth and the UK rates hike will remains uncertain.



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  1. Clearly there will what may turn out to be a quite long period of uncertainty in the run up to the referendum, particularly if the exit campaign appears to have the edge. If the result is for exit this period will extend until there is some clarity on how the UK goes forward.
    I therefore believe we do need to discuss the possibilities sorting out trading terms we would look to achieve with the EU. if, as seems at least possible, the public do vote to leave.
    Additionally there is obviously a whole world out there, outside the EU, with whom the UK would then be able to negotiate trade deals. Deals that do not have to be agreed with 28 ‘home’ states before they can be put into operation. We all know the difficulty the EU has agreeing things between it’s members, let alone with countries or trading blocks outside the EU!
    The ‘better to stay in’ advocates will just stay with all the negatives just as they are already warning that every UK household will be worse off, to the tune of some £3,000 I believe they are claiming.
    We are going to see many yards of column inches on this over the coming months so my plea is for all concerned to ‘KISS’ keep it simple and don’t start trading statistics, just keep to the fundamentals.

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