Not ev­ery­one's scared about a Brexit vote in the Com­mons

The Star Malaysia - StarBiz - - Foreign News -

LON­DON: Some of the big­gest money man­agers aren’t spooked by the prospect of a de­feat of the United King­dom’s Brexit di­vorce deal in Par­lia­ment.

Aberdeen Stan­dard In­vest­ments, Al­lianz Global In­vestors and In­vestec As­set Man­age­ment, which be­tween them man­age nearly US$1.5 trillion, are keep­ing long po­si­tions on ster­ling, even though Bri­tish Prime Min­is­ter Theresa May looks set to lose a vote on her deal next week. They see law­mak­ers even­tu­ally act­ing to avoid the eco­nomic dam­age of crash­ing out of the Euro­pean Union in March.

“The best route to agree­ment is by rais­ing the prob­a­bil­ity of no deal,” said James Athey, a money man­ager at Aberdeen Stan­dard, which over­sees US$736bil and has bought the pound against the euro. “The sec­ond vote will be a lot closer to the dead­line and thus likely sharp­ens the focus of many of those who voted against.”

With many of May’s own Con­ser­va­tive Party mem­bers against the agree­ment and op­po­si­tion Labour plan­ning to vote against it, the odds of pass­ing it with 320 votes on Dec 11 look im­pos­si­ble. But var­i­ous law­mak­ers have said there is no ma­jor­ity in Par­lia­ment for no deal ei­ther, rais­ing mar­ket hopes it will pass on a sec­ond try or that a new Brexit ref­er­en­dum will be called.

An ini­tial re­jec­tion by Par­lia­ment would be a sig­nal for In­vestec portfolio man­ager Rus­sell Sil­ber­ston to add to his pound po­si­tion. Strate­gists see the pound fall­ing to US$1.25 if the deal is re­jected, ac­cord­ing to a Bloomberg sur­vey.

“We are look­ing to buy on sub­stan­tial weak­ness – hence if the vote fails and we get a big fall, then we would look to pick some more up,” Sil­ber­ston said.

The pound is trad­ing at around US$1.27 amid doubts about the Par­lia­ment vote, af­ter surg­ing above US$1.31 in early Novem­ber as a Brexit deal looked set to be agreed. That leaves it down around 15% from its level be­fore the 2016 Brexit ref­er­en­dum.

An anal­y­sis by the Bank of Eng­land saw the pound crash­ing another 25% to be­low par­ity with the dol­lar in a “dis­or­derly” Brexit sce­nario. While the chances of that may be low, Aberdeen’s Athey said it was hard to have high con­vic­tion and there will be plenty of volatil­ity, so he would only add to his po­si­tion into a rally once the sit­u­a­tion is re­solved. And a big de­feat for May’s deal could see him take his money off the ta­ble.

“If Theresa May loses the vote by 150 on Dec 11, I would have to se­ri­ously re­con­sider,” he said. “The mar­ket would take a sec­ond ref­er­en­dum as a pos­i­tive and I think that might be a mis­take, so I would maybe use that as an op­por­tu­nity to exit.”

The pound surged nearly 1% on Tues­day af­ter the EU’s top court in­di­cated the United King­dom could uni­lat­er­ally re­verse the Brexit process, be­fore the currency erased its gains. The con­stantly chang­ing sce­nar­ios are keep­ing Al­lianz money man­ager Kacper Brzez­niak busy ad­just­ing his out­come prob­a­bil­i­ties, while he holds a call option on the pound.

“That’s ul­ti­mately a long-term view, based on my be­lief that a no-deal will be avoided,” said Brzez­niak. “It’s very dif­fi­cult at this stage to have a fixed game plan.” — Bloomberg

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