With 1 year to Brexit, UK equities 'are a screaming buy': Larry McDonald

  • A year from now, when the Brexit transition begins, U.K. stocks will be the place to be, predicts Larry McDonald, editor of The Bear Traps report.
  • The U.K. is set to begin the transition of exiting the European Union on March 29, 2019.
  • "U.K. equities are the cheapest equities in the developed world," McDonald says.

London's main stock index has taken a beating but a year from now it will be the place to be, predicts Larry McDonald, editor of The Bear Traps report.

The U.K. is set to begin the transition of exiting the European Union on March 29, 2019. The transition process will last 21 months before the country leaves the member bloc completely, according to a new agreement announced last week.

"U.K. equities are the cheapest equities in the developed world. They are a screaming buy relative to the United States, trading at 13 times earnings. The U.S. is close to 18 times," McDonald, the head of U.S. macro strategies at ACG Analytics, said on CNBC's "Closing Bell."

A man wearing clothing featuring the Union flag stands in front of the Houses of Parliament in London, on March 29, 2017.
Oli Scarff | AFP | Getty Images
A man wearing clothing featuring the Union flag stands in front of the Houses of Parliament in London, on March 29, 2017.

On Thursday, the FTSE 100, an index of 100 companies with the highest market capitalization listed on the London Stock Exchange, posted its worst quarter since 2011.

British stocks had a bumpy first-quarter ride, marred by a spate of profit warnings and trouble in the retail and outsourcing sectors as Brexit uncertainty hangs over equities.

Meanwhile, the pound has dramatically strengthened over the last year as Britain works with the EU over its exit, said McDonald, also a CNBC contributor.

The currency trades inversely to the FTSE 100, which has a lot of foreign earnings.

"Over the next year, what's going to happen is … populism will rise, the pound will weaken and U.K. stocks will be the place to be," he said.

BlackRock, meanwhile, recently warned that while the new Brexit transition deal removes some uncertainty, it doesn't appear to be a catalyst to push the market higher.

"The end state of UK-EU relations is highly uncertain, with potential for a new cliff edge risk at the end of 2020," BlackRock global chief investment strategist Richard Turnill wrote.

— CNBC's Silvia Amaro and Reuters contributed to this report.