HSBC ups UK, Swiss equities but cuts UK GDP estimates on Brexit

HSBC upgraded UK and Swiss equities following the UK’s decision to leave the European Union, but cut its growth estimates for the UK.

It upped its stance on UK stocks to ‘overweight’ from ‘neutral’ and on Switzerland to ‘overweight’ from ‘underweight’ noting both markets have relatively high non-EU defensive exposure.

“We see these attributes as very much in demand in the heightened risk-off environment that we expect to persist.”

However, it cut its rating on Spanish equities to ‘underweight’ from ‘overweight', maintaining its ‘underweight’ on Italy, as it said peripheral eurozone countries were the most at risk.

HSBC also downgraded France to ‘underweight’ from ‘overweight’ highlighting its greater exposure to domestic European growth.

In terms of sectors, it maintained its defensive bias and reiterated its ‘overweight’ positions on food & beverages, household products and utilities. HSBC added to this by upgrading pharmaceuticals to ‘overweight’ from ‘underweight’ and further cutting its financials exposure by downgrading insurance to ‘neutral’ from ‘overweight’.

“Given uncertainty on the timing of an agreement on the UK’s future terms of trade with the EU and other trading partners (note the Canada-EU trade negotiations took seven years and the deal has yet to be ratified by the European Council and Parliament), the risk is that businesses and consumers postpone investment/purchase decisions and GDP growth takes a hit. This likely economic inertia could affect not just the UK but also the wider EU.”

The bank’s economists now expect UK growth to be hit hard, cutting their forecasts to 1.5% from 1.8% for this year and to just 0.7% from 2.1% for next year.