What drive GBP hedging for further downside risks:

Despite UK GDP prints managed to post better than forecasted numbers, actual 0.6% versus forecasts at 0.5% and previous 0.4%, the UK growth outlook has been hit by mounting Brexit risks and policy uncertainties.

The weaker growth forecasts and lower rate outlook is compounded by a very large current account deficit. According to a Bloomberg survey on Wednesday, consensus looks ahead for the U.K. to contract by 0.1% in Q3. Investors were now eyeing the BoE’s upcoming policy meeting amid growing expectations for a rate cut.

While the BoE rate cut appears imminent as policy makers look for a weaker currency to help support the economy.

As a result, the sterling is expected to weaken further, bottoming in the low 1.20s in early 2017, as the Fed readies to hike.

Amid the Brexit-induced turbulence, Polish assets have acted as the prominent proxy for the CEE region for the past month, with adverse market moves across Polish asset classes amplified by on-going political noise.

GBP Hedging Portfolio:

To protect against an uncertain political and economic environment following the Brexit referendum, we recommend going long our ‘Brexit+’ / short ‘Brexit-’ baskets.

Since the UK's decision to leave the European Union, our ‘Brexit+’ basket has outperformed our ‘Brexit-’ basket by 8% (since 24 June).

‘Brexit+’ basket is composed of stocks likely to be resilient in a Brexit scenario: The UK exporting companies (benefit from lower GBP) - European companies susceptible to gaining market share in case of Brexit.

‘Brexit-’ basket is composed of stocks which could suffer from Brexit: - UK companies sensible to domestic growth - Foreign companies exporting to the UK - UK companies with cost based on foreign currency but revenue in GBP - UK companies heavily indebted in GBP.