Brexit chaos is back giving pound investors reason to exit

23rd May, 2019 10:08:00 printer

LONDON: The pound is on a record losing streak and there aren’t many investors ready to stand in the way of further losses.

Investec Asset Management, Aberdeen Standard Investments and Pictet Asset Management are cutting sterling positions or staying on the sidelines as Britain’s political turmoil reignites uncertainty around the nation’s exit from the European Union. With a senior minister resigning to add pressure on Prime Minister Theresa May to abandon her deal with the EU and quit, the risk of a disorderly Brexit is back on the radar, report agencies.

Sterling slid to a four-month low near $1.26 (Dh4.62) Thursday and is on the longest losing streak on record versus the euro amid concern that Ms May’s successor could take Britain out of the bloc without a deal or call an early election. Brexiteer and former Foreign Secretary Boris Johnson is seen a top contender, and also the least market-friendly.

“We have lower pound weights than at any time in the last eighteen months,” said Andrew Cole, a fund manager at Pictet Asset, which oversaw $491.5 billion as of December. “May’s departure is priced in but I’m not sure the market is ready for Johnson.”

Andrea Leadsom resigned as leader of Parliament’s lower house late Wednesday, ramping up the pressure on Ms May, while the Conservative Party is expected to get routed in Thursday’s European elections. The head of an influential group of backbench lawmakers, Graham Brady, told reporters he would meet with May on Friday.

After leading Group-of-10 currency gains in the first four months, sterling has slid to the bottom of the pack in May. It has slumped 15 percent since the Brexit referendum almost three years ago. U.K. government bonds have rallied as investors seek a haven, with 10-year yields breaking below 1 per cent Thursday for the first time in seven weeks.

Pictet’s Cole and Investec Asset Management portfolio manager Russell Silberston both see the currency testing 2016 lows below $1.20 should the odds of no-deal Brexit or a general election continue to build.

In the short term, the only things that could work in sterling’s favour are any gains for pro-EU parties in this week’s European elections or Ms May’s Brexit plan getting through Parliament, said Mr Silberston. He closed out his pound positions in February and is now staying neutral.

The longer-term picture is murkier, given risks including a no-deal Brexit and a snap election.