GBP/USD to surge to 1.40 by September-2021 – UBS

Economists at UBS advise to hold their nerve on UK assets despite the heightened concerns over the final stages of the Brexit process as the political and economic incentives point to an agreement eventually being reached. This outlook supports UK assets.

Key quotes

“We are positive on the medium-term outlook for sterling, both against the US dollar and against the euro. In line with this view, we are not hedging sterling risk for UK assets held in international portfolios. By September of next year we expect sterling to rise to USD 1.40, against 1.29 at present.”

“We also like the UK equity market. A positive outcome to talks would also remove a major impediment to the UK equity market, which has lagged global stocks. Added to this, the UK offers an attractive valuation at 15.4x 12-month trailing P/E, which is a 30% discount to MSCI All-Country World. We expect earnings growth to fall substantially this year, but by next year we anticipate a robust rebound driven by an economic bounce-back and a recovery in the oil price. The UK market has a high exposure to cyclical value sectors such as energy and basic materials, which could benefit from a global recovery.”