Brexit uncertainty means UK is ‘univestable’ — Bernstein says

Brexit
is causing confusion among investors.
Reuters/Paul Hackett

• Analysts at Bernstein, one of the best-respected
  research houses on Wall Street, believe that the UK’s Brexit
  future is so unclear that the country is currently
  “uninvestable.”
• “With UK politics in the midst of Brexit turmoil what
  are investors meant to do?” — Bernstein’s Inigo Fraser-Jenkins
  and his team asked in a note to clients.
• The note comes after a chaotic four days of
  developments in Brexit, which has left a no deal outcome on the
  table and Prime Minister Theresa May teetering on the
  brink.

The last week has been, to put it gently,
an eventful one in British politics, and developments around
Brexit are now so uncertain that Bernstein, one of the
best-respected research houses on Wall Street, thinks the UK is —
right now at least — “uninvestable.”

Writing in a note to clients on Friday, the Bernstein team led to
by Inigo Fraser-Jenkins admitted that UK political developments
are now so unpredictable that it is virtually impossible to model
them into an investment strategy.

“With UK politics in the midst of Brexit turmoil what are
investors meant to do?” Fraser-Jenkins and his team asked.

“We think that the UK market might be ‘uninvestable’ in the
specific sense that the near term movement is likely to be
dominated by political forces that, bluntly, are very hard to
model.”

“Sometimes this moment of extreme uncertainty proves to be a
cathartic moment for risk assets marking a floor. Maybe. But
there are also good reasons to see why uncertainty could
persist,” the team continued.

“Why take the risk of buying such a market?”

To be clear, Bernstein’s team are not saying that the UK’s
fundamentals are so bad it does not recommend investing, but is
simply pointing out that the lack of political clarity makes it
very difficult to determine asset price movements.

Read more:
’28 months of work undone in hours’: The City of London reacts to
the chaos of Theresa May’s crumbling Brexit
deal

In the longer term, however, things are still pretty foggy, so
the firm recommends being underweight on UK stocks.

“On a longer horizon uncertainty seems likely to hang over the UK
for some time to come which, we assume, will act to dampen
investment. Over that longer horizon we would underweight the UK
versus other regions,” the team wrote.

Bernstein’s call comes after four utterly chaotic days in
European politics. On Tuesday evening rumours began to swirl that
the UK had secured an initial Brexit deal with the European
Union, sending the pound skyrocketing. 

Just over 24 hours later, Prime Minister Theresa May appeared
outside Number 10 Downing Street, confirming that a deal had been
struck, and that it had the backing of her Cabinet.

By Thursday morning, however, three Cabinet members, including

Brexit Secretary Dominic Raab, had resigned saying they could
not back May’s deal, and the hardline European Research Group was
laying the foundations for a coup against May. There is not
likely to be a majority in the House of Commons that would favour
the deal. 

Within a day of May announcing her deal it looked to be dead in
the water, and investors were not best pleased. The pound
suffered its worst day in over a year, while UK banking stocks
crashed, with some touching levels not seen since the day after
the initial Brexit vote.

Markets calmed down on Friday, but huge uncertainty remained. For
as long as that persists, expect investors to be incredibly wary
of the UK.

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