Herd of pound bulls sees its potential unleashed in 2020

Bloomberg

The chorus of bullish voices in favour of the pound is growing as investors become more confident the ruling Conservatives will win next month’s UK election.
Funds are increasingly betting on the currency to strengthen as Boris Johnson’s party extends a lead against left-wing Labour in polls for the December 12 vote. BlackRock Inc and Goldman Sachs Group Inc are among those on Wall Street touting the pound as a top trade for 2020 if he can win and push through a Brexit deal.

Making a Comeback
“We’re in the very early part of a sustained rally,” said Stephen Jen, founder and co-chief investment officer of Eurizon SLJ Capital. “The general election has a good chance of delivering a healthy majority for the Conservative party. If we have a clear outcome on the 12th we have a shot at $1.35 by year-end.”
The UK currency has already recovered a lot of ground since hitting an almost three-year low in September, gaining nearly 8% since then on the prospect of an end to Brexit uncertainty. Bank of America Merrill Lynch expects the currency to hit $1.39 by the end of 2020 and Goldman Sachs sees a rally of more than 4% versus the euro by the end of the first quarter.
Eurizon’s Jen, a pound bull for more than a year who said in January that fair value was at least $1.50, concedes he missed the currency’s sell-off to below $1.20 this summer, but “caught the recovery.” Now he says current market pricing is distorted and the election will have such consequences for policy that any rally is likely to be sustained.
Adrian Lee & Partners, which manages over $15 billion in assets, agrees. Its eponymous founder said the fund is turning more positive on the UK currency, especially versus the euro. He sees the promise of an end to Brexit as “an opportunity to buy the UK, not sell it.”
“The prospect of Brexit being over at some point together with fiscal stimulus will be very positive and it will make sterling and UK assets more appealing,” he said.
In the options market, demand for contracts to buy sterling has outweighed those to sell by 50% since October, after remaining balanced through the first nine months of the year, data from the Depository Trust & Clearing Corporation show.
Even though Eurizon’s Jen is bullish on the pound, he doesn’t recommend taking a huge bet before the election result.