Bankers from Deutsche Bank have advised clients to short the FTSE 250 and go long on the FTSE 100 to profit from the triggering of Article 50. Essentially, the bank foresees that the FTSE 250 will suffer and the FTSE 100 will prosper due to the indices domestic and global make-up respectively.
Much of the thinking from the bank’s analysts have to do with expectations that the pound will further devalue – meaning the global nature of companies on the FTSE 100 such as Vodafone will receive a strong boost when earnings are translated from USD to GBP:
“Our FX strategists expect a further 6% depreciation of the GBP trade-weighted index (TWI) by year-end, with the likely triggering of Article 50 over the coming weeks a key bearish catalyst.”
“With 60% of sales coming from outside the UK, the FTSE 100 tends to outperform when the sterling weakens – and our FX strategists’ forecast would be consistent with a further ~8% relative upside for this trade.”
Analysts from the bank continued that the triggering of Article 50 could increase uncertainty within Britain, and therefore cause the FTSe 250 to under-perform:
“If the triggering of Article 50 translates into a renewed rise in uncertainty and a further drop in sterling, we would expect the FTSE 250 to underperform again.”