JPMorgan says FTSE 100 to surge despite Brexit

Lighting up: JP Morgan believes the FTSE is well-placed to outstrip other stock markets

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15 August 2016

JPMorgan, one of the biggest critics of Brexit before the referendum, today declared UK shares would ride out the economic storm and maintain their status as the most attractive destination for global investors.

A triple-whammy of rising commodity prices, crashing bond yields and a boom in exports mean the FTSE 100 is best placed to outstrip other stock markets, especially in Europe, JPMorgan said.

The FTSE 100 is flirting with its record 7089.77 close, reached in April 2015, and rose 24.28 points to 6940.30.

The comments are in stark contrast to warnings from JPMorgan boss Jamie Dimon who said Brexit could cost up to 4000 UK jobs at the bank.

The ringing endorsement is significant given the barrage of poor economic data from the UK since its decision to leave the trading bloc nearly two months ago.

Manufacturing and service sectors saw a dramatic deterioration in activity last month to their lowest since April 2009 but UK stocks are likely to buck the gloomy trend, the bank said.

“We are not suggesting Brexit negotiations will be all smooth sailing. Still, if political uncertainty spikes again, our view remains that continental equities stand to lose more than the UK ones,” equity strategist Mislav Matejka said.

Rothschild’s view

One man not so keen on shares is Lord Rothschild. The veteran investor has slashed exposure to quoted equities at his fund RIT Capital because of “what is surely the greatest experiment in monetary policy in the history of the world”.

Listed stocks have fallen from 67% of his portfolio to 59% for the six months ending 30 June. He has bulked up hedge funds and credit investments.

“In times like these, preservation of capital in real terms continues to be as important an objective as any in the management of your company’s assets,” he said.

A recovery in emerging markets, caused by rising commodity prices, will help. About a third of UK blue-chip stocks’ revenue comes from places like China and India versus 20% for Germany’s DAX index and just 10% for the US S&P 500.

The Bank of England’s further foray into quantitative easing will also depress bond yields for longer, giving FTSE 100 stocks an edge over other investment options on the table for stock-pickers around the world.

UK dividend yields, a measure of how much income you receive on an investment, are riding high at 3.9%, the highest rate of any major region in the world.

It comes as the 10-year gilt yield hit another record low, at 0.5%, today after poor UK construction data on Friday.

The crash in sterling to a 30-year low will also continue to fuel good FTSE 100 earnings growth. Around 72% of FTSE 100 sales come from abroad.

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