Politics

Brexit clarity could spark a rare dual asset rally, strategist says

An anti-Brexit activist flies an EU flag during a demonstration outside of the Houses of Parliament in London on February 28, 2019.
DANIEL LEAL-OLIVAS | AFP | Getty Images

A "real change in clarity" regarding Brexit could cause a rare rally for both sterling and U.K. stocks, one strategist told CNBC Tuesday.

British Members of Parliament are set to vote on Tuesday whether to accept or reject Prime Minister Theresa May's revised Brexit deal, ahead of the U.K.'s scheduled March 29 departure from the EU.

Speaking to CNBC's "Squawk Box Europe" Tuesday, Willem Sels, chief market strategist at HSBC Private Bank, said the outcome of the vote could spark a rally across U.K. assets.

"Very rarely do we have the equity market and the currency moving together, but there are those days when there's real change and risk appetite," he said.

"People have not had the confidence to go into U.K. assets, our clients do not want to stick their neck out at this point in time. But if there was a real change in clarity then you could have the two moving together upward — (a Brexit deal) could do the trick."

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Brexit vote outcome will influence equity allocation: HSBC strategist

Sterling plunged after the Brexit referendum in 2016 but major U.K. firms performed well on the FTSE 100. Some of the huge conglomerates on the index actually collect revenues in dollars, meaning a fall for sterling meant they benefited. Thus, the FTSE and the pound had an inverse relationship for a long period after the vote to leave the EU.

Sterling rallied against the dollar during early trade Tuesday, but plummeted later in the session after U.K. Attorney General Geoffrey Cox admitted some legal risk remained in Theresa May's revised Brexit deal.

"It was worth being underweight on U.K. assets after the Brexit vote up to a few months ago," Sels added. "If we now have a deal … We'll have a clearer view as to whether the economy will outperform or underperform, and on that basis we could make another change to our equity allocation."

However, the clarity that Sels spoke of may prove to be elusive for Prime Minister Theresa May and her government. On Tuesday afternoon, there were still many U.K. lawmakers that needed convincing about the deal just hours before the vote.