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Asset owners expect to increase risk, split on U.K. assets — Brexometer

Asset owners expect to increase their level of investment risk over the next three to five years, with a split in appetite for U.K. assets in the near term, show data from State Street Corp. (STT)'s latest Brexometer index.

The index, which polls institutional investor sentiment about the U.K.'s departure from the European Union each quarter, showed 33% of respondents will increase investment risk. That is up from 27.8% of respondents in the previous poll.

The poll also found 15.5% of respondents said they expect to increase their exposure to U.K. equities, fixed income or alternatives in the next six months. In the second-quarter poll, 12.9% expected to increase allocations over the following six months.

However, 20.4% of respondents said they would decrease their U.K. holdings, up from 18.8% in the previous poll.

The anticipated impact of Brexit on business models is also dissipating, with 71.6% expecting an effect in the third-quarter poll. That compares with 78.3% in the second-quarter poll.

The poll was answered by 103 institutional investors across the globe in June and July. The U.K. government triggered a two-year exit process with the European Union in March. Last month, the U.K. voted in a general election, which saw the Conservative party lose its majority in Parliament.

"March 2019 is a quarter closer, but neither the U.K. election nor the beginning of Brexit negotiations have narrowed down what is likely to happen," said Michael Metcalfe, head of global macro strategy at State Street Global Markets, in a statement accompanying the data. "If anything, the possible outcomes have widened not narrowed. The loss of a Conservative majority in Parliament and the need to partner with the Democratic Unionist Party has raised hopes of a softer version of Brexit, but at the same time raised the possibility of political deadlock or no deal."

Mr. Metcalfe highlighted the growth in the proportion of investors suggesting they will both increase and reduce their exposure to U.K. assets. "Importantly, the balance is still positive; more investors still plan to increase their holdings of U.K. assets, there is still no evidence of capital flight from U.K. assets. But it is testimony to the continued level of uncertainty over Brexit that the opinion amongst these respondents is getting more divided not less as the deadline nears."

The full report is available on the State Street website.