Polls may be least of UK investors’ woes

Bloomberg

With all the focus on getting the positioning right for next month’s UK election, investors may be overlooking bigger threats beyond.
Even as optimism grows that Prime Minister Boris Johnson’s party will win the vote and see through a market-friendly Brexit deal, a floundering economy and the prospect of fraught trade talks with the European Union (EU) are unnerving some.
Allianz Global Investors warns against “complacency” and Algebris Investments sees the pound staying under pressure in the longer term.
Sterling has surged about 5% this quarter as Johnson secured a withdrawal pact with the EU and got a preliminary approval for it from lawmakers, dissipating market anxiety about a no-deal Brexit.
Yet, the annual pace of economic expansion has slumped to the slowest in almost a decade, and Societe Generale SA strategist Kit Juckes sees the effects of Brexit shaving half a percentage point off growth every year over the coming decade.
“Over the long term, there is probably some complacency,” said Kacper Brzezniak, a portfolio manager at Allianz Global. “The deal currently being proposed by Johnson and the rest would have been considered the hardest of hard Brexits before where people had forecasts like $1.15 for sterling. Now it looks like if we avoid a no-deal people are going to be relieved.”
Brzezniak is currently neutral on the pound but aims at shorting the currency if it climbs to $1.32 or higheraround $1.29.
Sterling gained about 1% as opinion polls suggested support is on the rise for the ruling Conservative Party ahead of the December 12 vote.
The currency may climb to $1.34 should Johnson’s party win, seen as the most likely outcome, according to a Bloomberg survey last week. The next most likely scenario — a Labour Party-led coalition — would only send the pound down less than 1% in the short term, the survey showed.