February 22, 2016 / 9:07 AM / 4 years ago

JP Morgan raises UK shares to "overweight", sees UK staying in EU

LONDON, Feb 22 (Reuters) - JP Morgan Cazenove raised its rating on UK shares to “overweight” from “underweight” on Monday and forecast that Britain would choose to stay in the European Union when it votes on the matter later in June.

While concerns about a possible British exit from the EU - dubbed by the media and investors as “Brexit” - hit sterling on Monday, the blue-chip FTSE 100 equity index managed to rise 1 percent.

JP Morgan noted, in its decision to upgrade its rating on UK shares, that the fall in sterling had a positive effect on British stocks, since the FTSE 100 on average derived 72 percent of its revenues from abroad.

“The JPM base case is that UK stays in Europe, but admittedly it is likely to be a close call. Once the campaigning starts in earnest, we believe that the bulk of businesses will fall in the ‘stay’ camp,” JP Morgan strategists wrote in a note.

“In the event of UK leaving, the initial knee-jerk impact on the market could be quite negative, but we believe the resulting GBP (British pound) weakness and Bank of England action will cushion a chunk of the fall in equities,” they added. (Reporting by Sudip Kar-Gupta; Editing by Atul Prakash)

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