UK stocks present a huge opportunity for investors if Britain votes to leave the European Union (EU), according to one of the world’s biggest banks.
In the event of a Brexit vote June 23, Deutsche Bank concludes British stocks will be the best performing in all of Europe.
Post-Brexit stocks across the continent may fall, but thanks to a weakened pound that would boost British exports, the UK would be in a relatively strong position compared to its European neighbors. (RELATED: Pro-Brexit Campaign Storms Ahead In Shock New Poll)
Analysts led by Sebastian Raedler, believe the FTSE 100, the share index of the 100 biggest companies on the London stock exchange, would dip by five percent but would outperform Europe’s Stoxx 600 by five percent and Germany’s Dax by 10 percent.
“Bookmakers’ odds point to a 70 percent probability of a Remain vote, down from 80 percent two weeks ago,” said Raedler. “We think European equities could rise by around five percent in a Remain scenario, driven by lower uncertainty and tightening peripheral spreads. In case of a Leave vote, we see around 10 percent downside for European equities at first (though this could be offset by a swift policy response). We think UK equities are set to outperform Europe in this case, given likely GBP weakness.”
Raedler argues the “highly defensive” nature of the UK economy means it is more capable of dealing with a market shock. The ability British exporters have to flourish on the back of a weaker currency also means there may not be as much to fear from Brexit as previously thought. (RELATED: Nobel Prize Winning Economist: Ignore Claims Of Crisis In Event Of Brexit)
“In the case of a ‘leave’ vote in the UK referendum (a scenario to which bookmakers’ odds attribute a 30 percent probability), we expect UK equities to outperform the European market, given the likely pound depreciation in such a scenario as well as the market’s defensive sector structure,” said Deutsche Bank’s note.
While the UK may have the advantage post-Brexit, Deutsche Bank argues a win for the “Remain” campaign would boost stocks in both Britain and the rest of Europe.
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