PIMCO sees 40 percent chance of 'Brexit', uncertainty to hit markets

The offices of Pacific Investment Management Co (PIMCO) are shown in Newport Beach, California August 4, 2015. REUTERS/Mike Blake

LONDON (Reuters) - Concerns over Britain’s exit from the European Union will weigh on UK financial markets for months to come, regardless of the outcome of this week’s EU summit, major bond market investor PIMCO said on Thursday.

In a note sent to press on Thursday, Pacific Investment Management Co, whose flagship fund alone manages $90 billion in assets, said it saw a 40 percent chance of ‘Brexit’ at a referendum planned for later this year.

It also said that any weakness in the UK government bond market after any vote to leave would come in UK government bonds with longer maturities. However, it said there would be support for short-term gilt prices because a vote for ‘Brexit’ would push back expectations for rise in Bank of England interest rates.

“UK polls suggest a tight vote with a very high degree of uncertainty,” PIMCO portfolio manager Mike Amey said in a note distributed to press on Thursday.

“We assume the UK will vote to remain in the EU. However, we assign a probability of up to 40 percent to a ‘Brexit’.”

He said the scale of the market reaction to a vote to leave would depend on how Brussels and London approached the fallout.

“Where the two sides act as if in an unpleasant divorce ... the market response could be more long-lasting, with obvious pressure on the British pound and large UK listed companies with significant European activities,” Amey said.

Writing by Patrick Graham. Editing by Mike Dolan