Pound seen cheap

It could soar on Brexit clarity, says money manager

SINGAPORE: The pound is a bargain and may strengthen to US$1.45 once the uncertainty surrounding Brexit starts to get resolved, according to Merian Global Investors Ltd.

The US$45bil London-based money manager has a long position on sterling, betting the economy will improve as soon as the protracted chaos over the UK’s separation from the European Union is over.

“Sterling is cheap particularly if we get any level of clarity,” said Huw Davies, fixed-income investment director, speaking in an interview in Singapore. “We’re long and trading the range. With any level of clarity, it could get well up to US$1.40 or US$1.45.”

Merian’s bullishness on the pound puts it at odds with companies such as Nordea Bank AB that have recommended shorting the currency, saying any optimism surrounding

Brexit is overdone.

The pound has strengthened against all its Group-of-10 peers this year, gaining 4% versus the dollar and reaching a nine-month high of US$1.3381 last week.

Sterling was at US$1.3267 as of 6:01 am in London yesterday.

Prime Minister Theresa May looks set to seek a long extension to the UK’s EU membership after House of Commons speaker John Bercow this week effectively banned her from bringing her Brexit plan back to parliament for a third time. May will head to Brussels for the summit with EU leaders on Thursday.

“If we get some sort of deal - even if it’s Theresa May’s not-very-good deal - then we’ll have enough clarity for actioning the economy to possibly do quite well,” Merian’s Davies said. “Both internationally and domestically you’re likely to see investment spending picking up quite a lot, and generally, sterling.”

Here are some of Davies’ other investment positions and views:

> Merian is short the dollar and is long emerging-market currencies including the Indonesian rupiah, Mexican peso, Brazilian real and Argentinian peso. Money manager likes Indonesia’s currency and bonds due to the nation’s stable fiscal outlook and high real yields

> Long two-year US Treasuries and short the longer end of the curve, including securities due in 15 to 20 years. Federal Reserve has finished hiking rates for 2019 and may adopt an even more dovish tone by year-end amid anemic global growth.