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Top broker says buy this ASX 200 stock now for the Brexit Effect

There is one S&P/ASX 200 (Index:^AXJO) (ASX:XJO) stock that is tipped to run higher within the next two months due to the unfolding Brexit drama playing out in the United Kingdom.

The stock in question is Pendal Group Ltd (ASX: PDL) and Morgan Stanley is urging investors to buy the international wealth manager as it believes there is a more than 80% chance that the PDL share price will outperform the broader market over the next 60 days.

Buy Pendal for a positive Brexit outcome

“This is because the stock has traded off recently, making short term valuation much more compelling,” said the broker.

“What’s more, PDL has endured the largest headwinds to flows in EU/UK, as well as earnings and trading multiples, from Brexit uncertainty among our covered Australian asset managers.

“With Brexit resolution more likely, we think the outlook for PDL could substantially improve. We also note that its US retail flows have been consistently positive for the past three quarters, highlighting the diversity of its growth options.”

Why Brexit matters

The UK may have stuck a deal to separate amicably from the European Union (EU), but British Prime Minister Boris Johnson still needs his country’s parliament to support the agreement.

A soft Brexit is far from being a done deal, but for the first time since the UK voted to leave the union via a divisive referendum, a divorce agreement looks to be within reach.

The Pendal share price is yet to respond positively to Brexit or Morgan Stanley’s bullish call with the stock slipping 1.2% just ahead of the market close to $7.08. The picture looks worse over a six-month period as Pendal shed around 20% of its value when the ASX 200 gained 5%.

Morgan Stanley thinks the stock is cheap on fundamentals and slapped an “overweight” rating on the stock with a price target of $9.60 on the stock.

Other ASX stocks caught up in Brexit

But Pendal isn’t the only ASX stock that is leveraged to a positive outcome for Britain and the EU. UK-bank CYBG PLC/IDR UNRESTR (ASX: CYB) will also be keeping its fingers tightly crossed that a friendly split is in the wings as a no-deal Brexit is likely to weigh on the region’s economic growth.

A positive outcome for Brexit would be a welcomed development but it won’t resolve the issue that caused the recent collapse in the CYBG share price – and that’s to do with the blowout in claims relating to the payment protection insurance (PPI) debacle, and the poor way that management has handled the disclosure.

Other ASX companies with exposure to the British and European markets include share registry services group Computershare Limited (ASX: CPU) and logistics group Brambles Limited (ASX: BXB).

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Motley Fool contributor Brendon Lau doesn't own any shares mentioned in the article. Connect with him on Twitter @brenlau.

The Motley Fool Australia has recommended Computershare. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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