EU Referendum: Money managers recommend investing in UK stocks should Brexit happen

Swathes of money managers are advising their clients to increase investment in UK equities, should there be a majority vote in favour of a British exit from the European Union on 23 June.

The logic is based on the cautious belief that a Brexit would trigger a decline in the value of the pound, while European equities would slide by as much as 8% to 10% after the EU second-largest economy exits the bloc. In tandem, the two events could result in the FTSE 100 outperforming other blue chip indices across Europe in the months that follow.

Speaking to IBTimes UK, Richard Hunter, head of research at Wilson King Investment Management, said: "It is probably safe to assume that in the event of a Brexit, firms with a higher domestic exposure [typically within the FTSE 250 and below] would be more vulnerable than FTSE 100 stocks, where a strong overseas earnings exposure could mitigate the uncertainty – and indeed even benefit from repatriating higher overseas earnings if the pound weakens further."

The economics team at Deutsche Bank has predicted that the pound – currently up on improved sentiment in favour of the 'Remain' campaign – could fall by another 5% to last week's (13 June) valuation by the end of 2016, after a potential Brexit vote.

"On that basis, the FTSE 100 should outperform the Stoxx 600 by around 5%," Sebastian Raedler head of European equity strategy, wrote in a note to Deutsche Bank clients, advising them to go "overweight", i.e. increase portfolio allocation, on the FTSE and sell German equities.

David Absolon, investment director at Heartwood Investment, part of Sweden's Handelsbanken Group, has also recommended a higher weighting in large-cap UK equities, which are heavily skewed to energy and miners and, in aggregate, beneficiaries of a weaker pound.

"Following Brexit, we could see significant market falls in European equities, notwithstanding likely dispersions between sectors and countries. Inevitably, periphery countries would most likely absorb the brunt of a risk-off trade.

"However, pound sterling investors would be cushioned by a weaker British currency. Furthermore, it is worth mentioning that global investors, which have been reducing their allocation to the region over the past three months, may be attracted back on a valuation basis," Absolon concluded.

Caution could be the key

While not disagreeing with wider market conjecture, Lee Gardhouse, chief investment officer at Hargreaves Lansdown, felt a bit of caution was merited under the current circumstances. "In our view investors are best off not getting caught up in the excitement when it comes to making decisions on their portfolio."

Gardhouse said Hargreaves Lansdown would not be partaking in any "knee-jerk reactions", either before or after the referendum. "At present, we consider UK and European markets to be reasonable value versus their history, but not a bargain."

In the interim, there is growing City consensus that a Brexit would see UK blue chips outperform their European counterparts.