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May’s Brexit deal rejected again; money managers deal with uncertainty

Supporters of Brexit rally near the Houses of Parliament in London, U.K., on Friday, March 29, 2019.

Political uncertainty in the U.K. makes it almost impossible to position portfolios, money managers said as the U.K. Parliament on Friday rejected Prime Minister Theresa May's withdrawal agreement to leave the European Union for the third time.

Members of Parliament voted down Ms. May's withdrawal agreement 344-286.

Following the vote Friday, Ms. May said: "The legal default is that U.K. is due to leave on April 12. The EU has been clear that any further extension will need to have a purpose and needs to be agreed by all EU leaders unanimously."

Ms. May added that on April 1, "the process will continue. This House (of Commons) rejected no deal and no Brexit and rejected all variations of the deal, and this government will continue to press the case for an agreement that will deliver on the referendum."

U.K. opposition parties called for a general election in response to Ms. May's speech after the vote. "This deal now has to change and if the prime minister can't accept that, (then) she must go so the U.K. can decide the future of the (country) in a general election," said Jeremy Corbyn, leader of the Labour Party.

On March 22, EU leaders said they expect to receive an indication from Ms. May on the next steps in the Brexit process by April 12. EU leaders are expected to require a much longer extension to an exit date and for the U.K. to take part in the European Parliament elections, which start May 23, in the event that the U.K. parties don't come to an agreement on the terms of the withdrawal.

The pound sterling fell 0.23% vs. the dollar Friday to $1.30, while the FTSE All-Share index rose 0.68%.

Money managers remain weary of the still uncertain outcome of Brexit and its impact on the main asset classes.

Karen Ward, chief market strategist for Europe, the Middle East and Africa at J.P. Morgan Asset Management (JPM), said in an emailed comment: "There is no parliamentary majority for a hard Brexit so this remains a small probability risk. (But) a double-digit decline in sterling may well be likely, as the currency would serve as the main valve to absorb the shock that would occur to U.K. trade."

Paul Markham, global equities portfolio manager at Newton Investment Management, said in a separate comment: "A no-deal exit on April 12 would be taken badly by sterling and equities, with gilt yields falling initially."

Mr. Markham added: "However, the perceived credit quality of the U.K. government, together with the potential for a very weak currency, could undermine the attractiveness of U.K. government debt over a longer time."

Elliot Hentov, head of policy and research, official institutions group at State Street Global Advisors, said: "A disorderly no-deal scenario is the worst of all worlds, as it first introduces a shock to the economy, with sterling expected to depreciate by around 10%."

"However, there will be little offsetting positive effects as this scenario doesn't remove medium-term uncertainty as negotiations with the EU would continue, with some taking on immediate urgency. So, an economic contraction is likely, though large U.K.(-listed) equities with majority earnings ex-U.K. should still perform fine," Mr. Hentov added.

Monica Defend, head of strategy, deputy head of group research and macro strategy at Amundi, said: "As the U.K.-EU divorce continues with an uncertain outcome, although a long delay to exit seems increasingly likely, volatility on U.K. asset classes is set to stay. Under the current environment, it is almost impossible to build on positioning starting from top-down consideration on the equity market. Our positioning grounds on bottom-up activity and indicates a broad underweight."