As long as political uncertainty persists, UK equities will struggle, according to Neil Birrell, chief investment officer of Premier Asset Management.
He said the immediate reaction by the currency markets after the government's defeat in the Brexit deal vote on Tuesday (January 15) suggested that political risk had fallen, the chance of a no-deal leave had fallen, and the chance of a soft-leave or in fact, no-leave had risen.
Mr Birrell said that carried on through yesterday (January 16) when the vote of no confidence in the government did not succeed.
But he said we are in for another period of uncertainty while the government works out what to do.
As a result, there are probably an unlimited number of possible scenarios and so speculating is pointless - although an outcome at one extreme or the other is more likely now.
Mr Birrell said: "It is therefore difficult to see UK equities making much progress in the very short term, but if global markets move ahead the UK will follow to some extent."
Mr Birrell said he regards UK equities as good value, but negative sentiment towards the asset class means the market will continue to struggle.
David Cheetham, chief market analyst XTB, said: "It now seems that all roads lead to a softer version of Brexit, which will require an extension of Article 50 beyond March and ultimately be positive for sterling.
"The pound remains not far from its highest level since November against the US dollar and while the road ahead remains rocky, the path of least resistance now appears to be higher."
If sterling rises in value this is likely to benefit the shares which earn more revenue in the UK domestic economy, relative to international earners.
Stronger sterling is also likely to mean that inflation falls, as the cost of imported goods falls.
Gordon Brown, co-head of global portfolio solutions at Western Asset, said he expects an agreement to be reached on the terms of the UK's exit, and this will boost UK assets, as most of those assets are trading at prices that reflect amore negative outcome.
david.thorpe@ft.com
