November 13, 2017 / 3:11 PM / a year ago

Hard Brexit threat may send pound to $1.20-Northern Trust Asset Management CIO

LONDON - The British pound could relapse by almost 10 percent to as low as $1.20-$1.22 if a “no deal” Brexit becomes likely, keeping investors wary of buying UK assets, Northern Trust Asset Management said on Monday.

Wayne Bowers, CIO Europe and APAC at Northern Trust Asset Management attends the Reuters Investment Summit, London, Britain, November 13, 2017. REUTERS/Paul Hackett

Wayne Bowers, Northern Trust’s EMEA and Asia-Pacific CEO and chief investment officer, who helps manage around $1 trillion in assets, also told the first day of the 2018 Reuters Global Investment Outlook Summit that his portfolio remained “risk-on” with expectations for 6-8 percent global equity returns in 2018.

He said, however, that if the UK risked crashing out of the European Union without a trade deal in place sterling could be hit again. “This, I think, will suppress any significant gains we could expect to see from the pound...We are probably looking at 1.20-1.22 level I suppose.”

“With the pound at these levels and with the potential for it to go lower, UK assets...could be picked up at a lower price going forward,” Bowers told the summit at the Reuters office in London.

He expects global stocks to add to the near-20 percent rise so far in 2017 but reckons gains will remain concentrated in a few sectors - for instance technology has led returns in recent years, with U.S. tech shares up 40 percent year-to-date.

“The current winners take all, and winners take all for a few more years,” Bowers said.

While tech firms’ high share price valuations are often seen as exuberant, Bowers said these might be justified.

“If you accept that companies are, in aggregate, implementing digitization strategies, then the historical references that we have used for those companies are perhaps out of date,” he said.

“The question is what value do you ascribe to companies that have a more serious view on digitalization ... will they be the winners? You can argue I think the market does justify the high level of valuations, on top of this global growth environment.”

Other positions:

* Overweight high-yield U.S. bonds but has been reducing exposure; underweight investment grade debt

* “Modestly overweight” emerging markets with a tilt towards Asia

* Shocks caused by a “significant” war, especially in Asia is the main risk, along with possible trade war.  

* Probably no place in traditional investment portfolio for cryptocurrencies but sees potential for blockchain technology to improve capital markets efficiency

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(This version of the story gives firm’s full name in headline, Bowers’ full titles CEO as well as CIO in paragraph 2)

For other news from Reuters Global Investment 2018 Outlook Summit, click here

Additional reporting by Karin Strohecker

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