No evidence Brexit risk postponing investment decisions, says Jefferies

As the pound tumbled against the dollar and FTSE 100 bosses warned that Brexit would threaten investment, London's equity market was unperturbed.

The latest equity strategy note from Jefferies, which coincided with news that London Major Boris Johnson will back the campaign for the UK to leave the European Union, suggested there was no evidence the risk of Brexit was curtailing investment intentions.

Jefferies said investors were becoming more aware of Brexit, which would make it difficult for the UK to finance its budget and current accounts deficits.

It said while UK equity volatility has started to rise, the gilt market seems undisturbed and there are no signs of panic by fund managers.

UK equities still offer reasonable valuations and a number of companies with strong free cash flow, Jefferies said.

“In a ‘Brexit’ the UK would lose its credit rating and there would be more focus on the UK’s current account deficit and how that would be funded in a world where reserve managers held fewer Gilts,” the bank said.

It argued that sterling would undoubtedly fall and the Scottish issue would come back onto the agenda, as the SNP pushed again for a referendum to break up the Union.

Brexit would pose a significant challenge for the Bank of England´s monetary policy, but also to financial stability, particularly given London’s role as a financial centre, with a large banking sector with significant cross-EU exposure.

Nevertheless, Jefferies said sentiment appears not to have been too badly affected.