Brexit: Where do we stand and what should investors expect?

• Where we stand and possible scenarios ahead: After the EU approval of Brexit deal, we are going to pass through some tough times until the UK parliamentary vote on Brexit Withdrawal Agreement in December. UK Parliamentary ratification of the deal will be very difficult and will likely bring new episodes of market stress, but we think the most likely scenario is that the deal will ultimately be ratified (but probably not on the first attempt on 10th December). Whatever happens, uncertainty is likely to remain until the end-March Brexit date.

• UK Economy: Even though Brexit-related uncertainty is weighing on confidence, we assume that in the event of a Brexit deal (our base case scenario) the UK economy should experience a slight acceleration in 2019 and 2020. Furthermore, the labour market is in good shape and real wages, which are positive again, should support consumption.

• Investment implications: In the fixed income market, we have a relatively neutral view on Gilts (government bonds), becoming more constructive in case of a no-deal and more bearish in the other case. In the equity market we remain cautious on UK-listed equities, especially on UK stocks exposed to domestic growth. We look with more favour to more internationally-focused stocks and sectors with a majority of their earnings abroad or which report in a currency other than sterling. On currency: developments and trading in British Pound (GBP) are becoming increasingly binary: our base case scenario is that there will ultimately be a Brexit deal with the potential for the GBP to appreciate, but we expect the currency to show a very erratic pattern though. So, the sizing of position and risk management for investors willing to take GBP exposure will be of utmost importance.

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