Chances of a negative Brexit outcome are higher now than ever before and the risks are not yet reflected in markets, Peter Fitzgerald, multi-asset CIO at Aviva Investors said on Tuesday.
"The actual risk that you have to assign to a negative outcome on Brexit or a harder Brexit has got to be higher now than it has ever even been in the past," Fitzgerald told Reuters.
He said not only the population but also politicians were distracted by the coronavirus crisis, and the ongoing economic shock could induce hardline Brexit advocates in the ruling party to argue "it doesn't really matter if you have another couple of percentage points off GDP, given the shock that we already had."
Britain's latest round of European Union trade talks ended recently without progress, and the government has until end-June to ask for an extension to the Brexit transition period.
If there is no extension and a deal isn't sealed by end-October, Britain could be cast adrift without trade arrangements in place.
"It is very finely balanced in terms of the potential for a hard Brexit still. And I would agree that this is not broadly reflected in markets," Fitzgerald said.
Sterling has seemed impervious however, trading at 3-month highs against the dollar and rising more than 6% off an 11-year low hit versus the euro in March. Fitzgerald predicted sterling to stay calm for now and react only towards year-end.
"There is a broad recognition that deals with the European Union are always last minute and run up to the wire."
(Reporting by Sujata Rao and Karin Strohecker) ((firstname.lastname@example.org; +44 207 542 6176;))