London: The historic Brexit trade accord may have sparked a relief rally, but investors are pouring cold water on the notion that it's the beginning of a bullish era for UK markets.
The limitations of an accord that excludes services, the worsening pandemic, and the fact good news is already priced into markets are big headwinds. For many, the best thing about the deal is that is the simple fact that it's here at last.
"Brexit has bored the hell out of everyone. We can now all look forward to reading about something else on a daily basis," said Mike Riddell, portfolio manager at Allianz Global Investors. "But don't kid yourselves that this is the end - it's only the end of the beginning."
The pound pared gains on news of the Christmas Eve deal, staying near 2018 levels against the dollar. The FTSE 250 Index, a benchmark for mid-cap UK companies, rallied more than 2 per cent during the week in the run-up to the agreement.
Some see a case for why the currency can shed its status as a reliable laggard among G-10 peers since the 2016 referendum - and for the British stock market to no longer be one of the most hated in the developed world. UBS Global Wealth Management, for one, touted the country as its most-preferred stock region.
Yet huge challenges remain, from the country's economic trajectory to its trade relations with the rest of the world. Here's how investors are factoring in the watershed agreement into their allocation plans.
Jack McIntyre, portfolio manager at Brandywine Global Investment Management, said: "2021 should have a much better growth back drop for the global economy and the UK will benefit from it. It will take time for the animal spirits to kick in.
"There is investment that has been sidelined that should start to come alive in 2021. I think sterling is still under-owned. Particularly, versus the other European currencies, particularly, the euro."
Deal helps... but
And here's what Karen Ward, chief market strategist for EMEA at JPMorgan Asset Management, said: "A Brexit deal is certainly helpful, particularly for the domestically focused companies in the index. But a greater support for the FTSE would be a sign that vaccines are being rolled out quickly and a global synchronised recovery is taking hold.
"If that narrative gathers steam in the early months of the year then UK equities may be one of the strongest performing markets for 2021."
What about other deals?
Riddell at Allianz Global said: "The UK still has almost no trade deals, and negotiations with the EU are far from finished. Despite the market relief at a deal, the reality is that we are in what the Bank of England and others considered a very hard Brexit only a few years ago.
"You can question the BoE's prior economic modeling and assumptions, but even the greatest optimists agreed the UK economy would experience a substantial negative shock under such an agreement in the short to medium term."