(Bloomberg) -- U.K. lenders and homebuilders will be among sectors in focus after the European Union and the U.K. reached a Brexit trade deal.
European Union ambassadors gave the go-ahead to the bloc’s draft free-trade agreement with the U.K., paving the way for the deal to take effect on Jan. 1. The thumbs-up by EU member-country envoys sets the stage for formal approval by the 27-nation bloc’s governments on Tuesday and for a vote by the U.K. House of Commons on Dec. 30.
The pact should give rise to the “unwinding of the uncertainty discount” which has meant U.K. shares have been unloved since the 2016 referendum to leave the EU, Dan Nickols, head of U.K. small and midcap strategy at Jupiter Fund Management, wrote in a year-ahead outlook note prior to the agreement being reached.
The news comes after U.K. shares were hit last week by fresh pandemic restrictions and as several countries closed their borders with Britain after a new strain of the coronavirus was identified in the country. The FTSE 100 index fell 1.7% on Dec. 21 before paring the decline later in the week as hopes of a Brexit trade deal grew.
Futures contracts on the FTSE 100 Index rose 0.9% as of 9:59 a.m. in Singapore.
The sectors most sensitive to the Brexit talks, which are predominately exposed to the U.K. economy, include:
The deal should provide a boost to U.K. equity returns, David Coombs, fund manager at Rathbone Multi-Asset Portfolios, said prior to the agreement. However, rising unemployment and a weak economic recovery from Covid-19 may “put the dampeners on any Brexit deal-related positivity.”
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