Europe’s leading managers foresee parliamentary gridlock after Prime Minister Theresa May’s EU withdrawal agreement sparked a barrage of criticism and ministerial resignations.
“We are currently short the pound as we expected serious problems with getting the deal May agreed through Parliament,” said Mark Dowding, head of developed markets at fixed-income specialist BlueBay.
He said uncertainty could cause sterling to “return to its late 2016 lows versus both Dollar (1.20) and Euro (0.94).”
The pound plunged dramatically against the dollar on Thursday morning (see chart below) after May’s Brexit Secretary, Dominic Raab, resigned in protest at the withdrawal agreement.
The pound rose briefly to $1.30 before hitting a daily low of $1.27 but had recovered to around $1.28 as of late morning on Friday.
Crispin Odey, the Brexit-supporting hedge fund manager, criticised May’s deal in his latest investor letter. “Whereas the UK could historically unilaterally pull out of the E.C. (European Commission), now we will only be able to pull out if Brussels agrees to it,” wrote Odey, whose equities flagship is now up 48.4% this year.
“If parliament does not wake up, the politicians will rightly get annihilated in the next general election.” He added that “populism in the west has a long way to go” and repeated his prediction assets are on the cusp of entering bear market territory.
May’s deal, which will take the UK out of the EU after a transition period, but does not set final terms, faced criticism from politicians who would prefer to remain in the bloc and Brexiteers, who said it ceded too much control to Brussels.
“We think a deal which largely gives up control over much of the UK’s commercial and trade law for an indefinite period is likely to be unacceptable to most in the House of Commons,” said Dowding. “This is likely to lead to policy paralysis and a political crisis over coming weeks.”
“Investor confidence in sterling assets is draining away as fast as ministers from Prime Minister Theresa May government,” added his colleague David Riley, who predicted a “rollercoaster ride” for sterling. “It could come off the rails completely.”
Davide Serra, the Italian founder of London-based hedge fund Algebris Investments, retweeted a message calling Brexit a “human tragedy” on Wednesday.
The message read: “Lost jobs, lost prospects and not a few lives (Brits in the EU, Europeans in the UK) genuinely wrecked. And all for a fantasy vision of an absolute, unlimited, all-or-nothing sovereignty that never existed and never will exist.”
Serra was one of several London hedge hedge fund managers, including David Harding and Ian Wace, who supported remaining in the EU. But industry opinion has been divided, with Odey joined by other high profile managers including Sir Paul Marshall and Sir Michael Hintze in favouring Brexit.
Brexit turmoil: Europe’s hedge funds react on EuroHedge.