Jason Groves and James Burton — Daily Mail August 22, 2016
UK shares are set to outstrip the performance of those in Europe in the wake of the Brexit vote, a leading proponent of Project Fear has admitted.
US investment bank JP Morgan, a major donor to the Remain campaign, had warned before the referendum that British share prices would fall in the event of Brexit.
Chief executive Jamie Dimon claimed leaving the EU could cost 4,000 jobs at the bank.
But in a remarkable U-turn, the firm has told investors that British shares look a good bet.
In a research note, JP Morgan equity strategist Mislav Matejka said rising commodity prices, falling bond yields and an export boom fuelled by the fall in the pound had made the UK attractive to international investors.
He said UK shares were ‘bullish’ and set to outperform those of other EU countries.
‘We are not suggesting Brexit negotiations will be all smooth sailing,’ he added.
‘Still, if political uncertainty spikes again, our view remains that continental equities stand to lose more than UK ones.’
He said the fall in the pound was ‘a big positive for UK equities, as they derive most of their profits from abroad’.
The FTSE 100 index plummeted in the days after the Leave vote but recovered – and is approaching record levels.
The change of heart by the prominent Remain supporter is the latest in a series of developments to defy the doom-laden predictions about the fallout from leaving the EU.
Economists have been cheered by unexpectedly positive performance figures since the referendum – helping to lift a cloud of gloom which settled soon after the vote.
Before the poll, then Chancellor George Osborne claimed Brexit would plunge Britain into a ‘DIY recession’, which would require an emergency budget of tax rises and spending cuts.
He published ‘Treasury analysis’ which claimed leaving the EU would spark a recession lasting at least a year and cost every family £4,300 each in the longer term.
But the latest Treasury analysis of forecasts by City economists suggests they expect the economy to grow by 1.6 per cent this year and 0.7 per cent in 2017 – up from 1.5 per cent and 0.5 per cent predicted last month.
Barclays increased its 2016 forecast from 1.1 per cent, while Citigroup raised its prediction from 1.3 per cent to 1.7. Commerzbank hiked its estimate from 1.2 per cent to 1.6.
Official figures last week showed unemployment remained at just 4.9 per cent in July, while the Government managed to generate a £1billion surplus after a strong month for tax receipts. Retail sales jumped 1.4 per cent, smashing expectations.
A study by top accountancy firm EY suggested City businesses were also more positive about their prospects.
It analysed what bosses had said in public about the effects of Brexit, finding only 16 per cent of insurance firms expect a negative effect on their business, compared with 40 per cent that think it will make no difference and 10 per cent that believe it could be positive.
Even investment banks – which protested loudly about the risks before the vote – have changed their tune.
Only 21 per cent have voiced concerns since the result, and 15 per cent are expecting business as usual. EY’s Omar Ali said: ‘Companies across the sector seem broadly confident in the ability of their business to weather the initial storm.