LONDON (Reuters) - JP Morgan Cazenove has downgraded its position on British stocks while upgrading euro zone equities, citing negative pressures on British equities from rising gilt yields as one of its main reasons.
"Last week we took profits on our Emerging Markets 'overweight', as it became a consensus long, the U.S. dollar is moving higher, the Fed is coming up and Chinese property tightening is restarting," JP Morgan Cazenove equity strategist Mislav Matejka said in a note.
"Today we build on this move by cutting UK, which was our key OW this year, foreign exchange hedged. UK benefited from large emerging market exposure, low yields and British pound weakness. UK bond yields are rebounding, and this is clearly not 'for the right reasons'," he added.
He added that euro zone stocks looked better, on expectations they would benefit from the euro falling against the dollar and since European bank stocks could benefit from higher bond market yields, which could help their profits.
British 10-year gilt yields this month hit their highest level since June's Brexit vote, on concerns over a 'hard Brexit' in which Britain leaves the EU's single market in order to adopt immigration controls, disrupting access to its main trading partner.