Deutsche Bank’s advice to ‘invest in UK if Leave wins ballot’ after EU referendum
A Leave vote could cause the pound to drop by another 5 percent by the end of the year
ONE of Europe’s biggest banks yesterday advised investing in UK companies in the event of Brexit because they would “outperform the European market”.
Analysts at Deutsche Bank say a vote to leave the EU would cause panic on Europe’s stock markets in the weeks after June 23, causing them to fall by as much as 10 per cent.
But the FTSE 100 will perform better, boosted by a weak pound.
A note from the bank reads the UK stock market “tends to outperform during periods of GBP (pound) weakness”.
It said the value of the pound could tumble by as much as another 5 per cent by the end of the year.
The value of sterling has already declined by 8 per cent since its November peak.
A weak pound will also be good for exporters, as it will make British goods cheaper for European countries to buy.
Deutsche Bank concludes: “In the case of a Leave vote in the UK referendum (a scenario to which bookmakers’ odds attribute a 30 per cent probability), we expect UK equities to outperform the European market, given GBP downside in such a scenario as well as the market’s defensive sector structure.”
The bank’s Sebastian Raedler, who helped compile the research, said: “If this is correct then the FTSE 100 should outperform the Stoxx 600 (the wider European markets) by around 5 per cent.”
However, Europe’s stock markets were seized by panic yesterday as financiers’ uncertainty over Brexit sparked a major sell off.
The FTSE plunged 2% - down by 121 points - after a wave of polls showed a Leave vote ahead in the EU referendum race.
Trading closed last night with £30bn wiped off shares, with the FTSE having dropped to below the 6,000 mark for the first time since February.
Sterling also fell again, losing 1.1% of its value against the dollar.
No10 sources claimed the nation’s currency is now as volatile as it was during the financial crisis in 2008.
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The Cac stock market in Paris also sank by 2.3%, while Frankfurt’s exchange shed 1.4%.
Yields on the German government’s 10-year bonds also turned negative for the first time meaning investors now have to pay interest to even have them.
German sovereign IOUs, regarded as some of the safest investments in the world, have long been a safe haven in troubled times.
It was also revealed yesterday that Bank of England governor Mark Carney will meet European Central Bank boss Mario Draghi and other state finance chiefs in Frankfurt on June 23, the day Britain goes to the polls.
The meeting will allow them to fine-tune their responses if there is market turmoil after the result is declared.
The Economist Intelligence Unit also predicted a vote to leave the EU would trigger a recession and set GDP growth back 6% by 2020.
Bookies also slashed the odds on a Brexit yet again, as Ladbrokes gave Leave a 43% chance at 5/4, and a Remain vote a 57% chance at 2/5.
Pro-EU Labour MP and Treasury Select Committee member Wes Streeting said: “The warning signs are already there.
“Turning our back on Europe would wreck the British economy, putting millions of hardworking British people’s financial stability at risk.”
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