JP Morgan cuts UK stocks to 'neutral'

Strategists at JP Morgan reportedly shifted to a 'neutral' stance on UK stocks in 2016 from 'overweight', while turning more positive on euro area shares.

Mislav Matejka, the broker's chief European equity strategist, said emerging markets were set to take a step back in tactical terms and bond yields in the UK had not been rising for the right reasons, removing two of the drivers for British stocks.

Neither would weakness in the pound - as a result of Brexit - continue to favour London-listed stocks, Matejka said.

Were politics to turn more uncertain then a falling pound could become a negative signal for Sterling assets, he said.

Furthermore, “UK was the only main region seeing earnings upgrades year-to-date, courtesy of the falling GBP and the rebound in oil, but consensus projections of +17% UK EPS growth for ’17 limit the room for any positive surprises,” the strategist added.

Shares in the euro area on the other hand offered an interesting hedge against a potential rise in levels of FX and bond volatility; hence Matejka upped his view on them to 'overweight'.

That would prove especially true if a tightening move by the Federal Reserve saw the euro weaken and bond yields move higher, benefiting the bloc's banks and exporters.

Nonetheless, he noted how JP Morgan's banks team was still cautious on European banks but added: "The sector is down 21% year-to-date and many brand it as ‘uninvestable’. In Q1, EM were deemed to be uninvestable, only to subsequently perform very well."