UK equities looking 'particularly attractive', says Morgan Stanley

(Sharecast News) - Since the global selloff at the end of last year, UK equity valuations are looking "particularly attractive", Morgan Stanley has told clients, suggesting banks could see the biggest bounce from a postive Brexit outcome.On the same day, strategists at JP Morgan Cazenove said their caution on UK housebuilders, property, banks and retailers had mostly evaporated, saying they now believe it is time to "selectively re-enter" these sectors.In absolute terms, the trailing dividend yield for the median UK stock has fallen to a 25-year high of 4.3% after the market's extended tumble in the fourth quarter of 2018, with the MSCI UK index also trading at a 30% discount to MSCI World, the lowest since early 1990s, and a 12% discount to MSCI Europe, the lowest since 2000.Ahead of the upcoming House of Commons vote on Theresa May's proposed Brexit deal, and with two and a half months left before the 29 March deadline, the Morgan Stanley equity strategists said historical market performance and valuation trends indicated the FTSE 100 would see a 5% rally after a perceived "positive" outcome, with the FTSE 250 jumping 10-15%, domestic banks getting a 25-30% boost and real estate stocks likely to be the other biggest beneficiaries, followed by housebuilders and retailers.The strategists said they believe that the equity market would likely react most positively to the government's deal being passed by parliament. The most negative outcome is a no-deal Brexit.A perceived "negative" outcome would be expected to happen more quickly, with the FTSE 100 falling 5%, the FTSE 250 by 15% and banks down 25-30%.In the event of a "negative" outcome, pharmaceuticals, consumer staples, tech and commodity sectors were seen as likely "relative outperformers"."The response from headline UK indices to any outcome is likely to be somewhat constrained by the counterbalancing impact of a likely move in GBP. For example, under a perceived 'positive' outcome the rally in GBP would act as a drag on the profitability of companies with high overseas exposure,and vice versa," the strategists warned as around 80% of FTSE 100 revenues come from outside the UK.Meanwhile, JPM Cazenove acknowledged that the political backdrop is "likely to remain volatile", with the PM likely to "handsomely" lose Tuesday's vote, raising the risk of early elections.Still, the Caz strategists see the probability of a no-deal Brexit having "sufficiently reduced" and, with the bank's economists expecting UK growth momentum to firm up and equity valuations having significantly underperformed over the past few years, they believe "the risk-reward for the UK domestic plays has improved", with many strong balance sheets and highly attractive dividend yields.Specifically, UK housebuilders were upgraded to an 'overweight' rating from 'underweight', with Persimmon, Barratt Developments and Berkeley "particularly attractive".In property, Land Securities was highlighted as its strong loan-to-value ratios, high occupancy and strongcash flows."UK domestic Banks might also be more attractive, with a focus on Lloyds."