By Julien Ponthus
LONDON (Reuters) - British shares would fare better than their European peers if the UK crashes out of the European Union without a negotiated divorce settlement, reads a Deutsche Bank research note published on Thursday.
"UK equities to outperform European equities by 4 percent in a crash Brexit scenario", the bank's analysts told clients, noting the defensive nature of the British stock market and the loss of growth momentum which would be experienced on the continent as a result of a "hard" Brexit.
"Our economists estimate that a crash Brexit would lower 2019 Euro area GDP growth from their base case projection of 1.7 percent to 1.1 percent," the note said, adding the fair value of European stocks would fall by about 5 percent.
With 65 percent of UK-listed companies' revenues sourced from outside Britain, a falling pound would offer an accounting boost and would contribute to give them an edge on their European competitors.
On the other hand, the fact that UK economic growth would contract by 0.3 percent means that British domestically focused stocks would underperform exporters by around 20 percent.
EU leaders shot down a divorce proposal by British Prime Minister Theresa May at a summit last week in Austria, fuelling fears that a "no-deal" exit was becoming more likely.
Labour leader Jeremy Corbyn is expected to warn about the dangers of such a scenario when he meets the European Union's chief Brexit negotiator Michel Barnier in Brussels on Thursday.
(Reporting by Julien Ponthus; editing by Sujata Rao)