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‘Brexit’ may knock 25% off sterling: Hedge fund CEO

Sterling may lose one-quarter of its value if the U.K. votes to leave the European Union in its upcoming referendum, the head of a top London hedge fund told CNBC.

"If there's a 'Brexit,' the currency is going to fall a great deal from here; so estimates range, but 25 percent is a possible estimate," Jonathan Martin, CEO and chief risk officer of London-based Markham Rae, told CNBC on Tuesday at the Investors Choice Awards.


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On June 23, the U.K. public will vote on whether the country should remain a member of the EU or go its own way — a so-called Brexit.

Sterling fell by around 4 percent against the U.S. dollar after the date of the referendum was announced in February, but has since pared losses.

"We think the prices need to adjust ahead of the referendum and in the event … that there is an exit, there is a very significant devaluation of sterling that needs to come," Martin told CNBC.

The referendum is expected to be close. In its latest poll, market research company, YouGov, found 39 percent of the public planned to vote to remain in the EU, while 38 percent would opt to leave.

"The market really hasn't got to grips with the fact that this is almost certainly a 50:50 bet. It rather thinks it's something like 33:67," Martin told CNBC

He said this mispricing provided opportunities for hedge funds.

"We think the pricing surrounding 'Brexit' and the pricing surrounding a Chinese devaluation are the best opportunities for what we do this year," Martin told CNBC on Tuesday.

"The clear trading exposures (for 'Brexit') are clearly euro-sterling, because that's the major trading partner. The key balance sheet exposures are dollars — so cable (sterling-dollar) — and the interesting problem with the euro-sterling hedge is that while undoubtedly it would be very damaging for sterling were the vote be to leave, it would also be very damaging to the euro, simply because the political fallout and the uncertainty that it would bring for other countries in the union would create some damage there," he later added.

Last month, HSBC said buying the Swiss franc might be the best hedge against a "Brexit."

"The CHF (Swiss franc) would likely rally on 'Brexit', given the political and European-centric nature of the crisis," HSBC currency strategists, David Bloom, Daragh Maher and Mark McDonald, said in a report.

"However, were 'Brexit' rejected, we would not expect maintenance of the status quo to provoke much CHF weakness. There is little evidence that CHF has priced in much Brexit risk, which means there is little risk premium to disappear," they later added.

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