Asset managers are cutting exposure to UK equities amid Brexit and the threat of a Corbyn government

 
Lucy White
BRITAIN-ECONOMY-RETAIL-CONSTRUCTION
Europe and Japan are seeing more of Brooks Macdonald's favour (Source: Getty)

Asset managers have revealed they are still cutting exposure to UK stocks, as concern grows over Brexit, the threat of a Corbyn-led Labour government and the health of the UK consumer.

London-based Brooks Macdonald, which has £11bn in assets under management, said that it was minimising its investment in UK equities as predicted growth rates for the year were well below the headline indices for other countries.

Meanwhile Tilney, the £24bn wealth manager, said it was reducing its exposure to UK assets as capital flows into the country were "under pressure from the threat of a Corbyn government and of course, Brexit".

Read more: Corbyn says bankers are "running scared" after Morgan Stanley warns Labour would be worse than Brexit

“When we look at analyst earnings expectations for 2018, we see a stark difference between expectations for UK companies which are expected to see earnings growth of just seven per cent versus the rest of the world which is expected to see earnings grow by 9.5 per cent," said Brooks Macdonald's investment director Edward Park.

"We have improved our outlook on Japanese equities from neutral to positive, noting that earnings growth in that region is expected to be 15.5 per cent in 2018 – over double that of the United Kingdom."

The firm also said it was decreasing its reliance on sterling due to concerns over the UK's "political backdrop", and consumers' ability to keep spending as real wages are under pressure.

Read more: European stocks will pay out a record €323bn in dividends in 2018, according to Allianz Global Investors

Chris Godding, chief investment officer at Tilney, added: "The UK is forecast to see one of the lowest rates of growth in the G20 next year in GDP and corporate earnings, as a result of a tapped out consumer and diminishing investment flows.

"Currency moves are difficult to call but our base case at the moment is that sterling will remain cheap or weaken relative to the dollar and euro."

Despite this, Tilney is bullish on the outlook for markets in 2018, as the global economy is generally healthy and unemployment is falling.

Godding argued that tighter liquidity, where more cash is tied up in assets which are less frequently traded, could prevent asset prices – which are already high – from "overheating".

Read more: Jeremy Grantham, who predicted the last two bubbles, warns the stock market is ready for a "melt-up"

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