UBS slashes FTSE 100 and Stoxx 600 year-end targets on Brexit
Updated : 11:40
UBS has slashed its year-end targets for the FTSE 100 and Stoxx 600 indices, and downgraded its forecasts for UK and eurozone growth in the wake of the UK’s vote to leave the European Union.
The bank cut its UK GDP growth forecast to 1.3% for 2016 from 2% and to 0.5% for 2017 from 2.3%. It trimmed its eurozone GDP forecast to 1.5% from 1.6% for this year and to 1.3% from 1.7% for 2017.
It also revised its year-end 2016 EUR/GBP forecast to 0.90 from 0.73 and its year-end 2017 forecast to 1.00 from 0.75. UBS left its EUR/USD forecasts unchanged at 1.16 and 1.20 for 2016 and 2017, implying GBP/USD at 1.29 and 1.20, respectively.
UBS also cut its year-end target for the FTSE 100, to 5,500 from 6,500. It said this was is in line with its pre-UK referendum Vote-to-Leave scenario and assumes a fairly aggressive price-to-earnings de-rating to 12x, partially offset by the heavy fall in sterling and FX boost to EPS.
“We see a significant amount of uncertainty around the UK over the next few months. We do not know who the Prime Minister will be, or when, or if, Article 50 is invoked and there are even possibilities of a General Election given the current fluidity of UK politics.
“This suggests a large degree of uncertainty around this target and also risks to the upside (as well as downside) if there were to be a rapid improvement in the political backdrop.”
UBS cut its year-end target on the Stoxx 600 to 340 from 400.
It expects the Bank of England to cut rates by 25 basis points each in August and November, and resume asset purchases over the coming months.
It also said Brexit means a more dovish monetary policy from the European Central Bank is now more likely. “We think the ECB will adopt a wait-and-see stance for now but stand ready, if needed, to inject additional liquidity into funding markets. An increase in QE seems unlikely in the short term, unless eurozone sentiment or financing conditions worsen sharply.”
At 1135 BST, the FTSE 100 index was up 0.5% to 6,389.24 while the Stoxx 600 index was up 0.2% to 327.19.