One in five investors fear no Brexit deal when UK leaves, Fitch finds

Sterling edges lower ahead of historic move as UK set to trigger article 50

Britain’s prime minister, Theresa May: While European markets advanced on the eve of invoking article 50, analysts cautioned that market sentiment will be dominated by developments during the negotiations. Photograph: Darren Staples/AFP/Getty

Britain’s prime minister, Theresa May: While European markets advanced on the eve of invoking article 50, analysts cautioned that market sentiment will be dominated by developments during the negotiations. Photograph: Darren Staples/AFP/Getty

 

Almost one in five debt investors globally fear that the UK, which is posed to press the start button on two years of Brexit negotiations on Wednesday, will end the divorce talks with the European Union without any deal, according to a survey carried out by Fitch, the credit ratings firm.

Fitch’s survey of investment managers, who oversee about €5.8 trillion of fixed-income assets, found that almost 77 per cent of respondents see geopolitical risk as the biggest threat to European credit markets over the next year.

“Various factors are likely to keep geopolitics at the forefront of investors’ minds, including Brexit, Europe’s busy election calendar and the support for populist and eurosceptic parties, and concerns about a more protectionist US administration,” Fitch said in a note to clients. France holds the first of two rounds of voting on its presidential election next month, while Germany faces federal elections in September.

Sterling edged lower, holding losses after the Scottish parliament voted in favour of a second referendum on independence, further highlighting the complex issues faced in the Brexit talks. The UK currency dropped 0.5 per cent against the US dollar to $1.2492 and lost 0.35 per cent against the euro, trading to 86.8p.

It also fell in early Asian trading as investors began to brace, by as much as 0.6 per cent to 1.2377 per dollar. It was the worst performer among the Group-of-10 which saw muted trading.

Corporate world

The “article 50 activation represents a historic day, yet the implications for the markets are less certain”, said Joshua Mahony, an analyst with online trading company IG in London. “Amid all the potential leaks out of the negotiating room, sterling is also likely to take its lead from the corporate world, should we hear of substantial job losses [in the UK].”

The FTSE 100 advanced by 0.7 per cent to 7,343.4 points, while the Iseq rose by almost 0.4 per cent in Dublin to 6,586.51 and the pan-European Stoxx 600 added 0.6 per cent.

Meanwhile, Fitch said that about 47 per cent of investors polled in its latest quarterly survey said they expect a “mutually acceptable UK exit agreement to be agreed in the next two years, including a transition agreement to allow continued access to the single market”. However, 29 per cent expect a deal with no transition arrangement, while a further 18 per cent expect that the two years of talks will conclude without any agreement.

International markets face upheaval and financial stability may be at risk if the Brexit talks end without a deal or transitional arrangement for the financial industry, according to an internal document drawn up by the German finance ministry on issues likely to emerge during the negotiations, which was leaked on Tuesday.

Germany’s priority will be securing an early commitment from the UK that it will meet its €60 billion Brexit bill, which includes budget commitments it has already signed up to and pension promises to EU officials.