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After a slightly more muted response from investors in Q4 2018, investor appetite for holdings of UK assets has polarised during Q1 2019, with an increase in both the number of those looking to increase and decrease their exposure. Investors planning to increase their exposure in the next six months increased to 19 percent - the second highest figure since Q3 2018 at 21 percent.

While the proportion of investors looking to decrease their holdings of UK assets rose for the third consecutive quarter to 22 percent. Also the second highest recording since Brexometer began, after a high of 24 percent in Q1 2018.

"Brexometer shows that investors are increasingly divided," said Michael Metcalfe, head of Global Macro Strategy at State Street Global Markets. "This would seem to mirror current market conditions, which have lurched from optimism around a deal or delay, to the pessimism surrounding the ability to get a deal done. Reflecting this reality, this quarter shows the proportion of investors expecting to significantly decrease their holdings of UK assets has jumped to a two-year high of 12 percent."

With the absence of clarity around Brexit, the number of investors holding a neutral medium-term outlook for global economic growth has increased during Q1, from 28 percent to 37 percent. Conversely, positive sentiment fell to 32 percent, representing the lowest reading since Brexometer begun.

The survey also found that while four out of five (80 percent) investors anticipate Brexit having an impact on their operating model, the proportion of those expecting it to have a significant impact increased from 19 percent in Q4 to 22 percent.

Other key findings of the latest Brexometer index include:

29% of institutional investors believe asset owners will increase their level of investment risk over the coming three to five years. Yet the number anticipating a decrease has fallen slightly, from a record high of 43% in Q4 to 40%

The proportion of investor's in need of greater support with currency overlay strategies rose during Q1, from 9% to 13%. But regulatory reporting issues, such as those required under Solvency II and AIFMD, remain the most in-need service (26%)

More than a third (35%) of institutional investors believe their company will use more cross-border fund locations, with Ireland (46%), Luxembourg (36%) and Germany (27%) listed as the most attractive for managers

"Sterling remains undervalued while uncertainties regarding Brexit and wider political risk remain," said Bill Street, head of Investments for EMEA at State Street Global Advisors. "Exchange rate movements have been subdued, rallying when a deal appears more likely and falling when uncertainties persist. Market movements in sterling indicate that investors agree that the tail risk of no-deal is low. However, views on the medium-term outcome of the Brexit process are mixed. This presents a market opportunity for those who are confident of the political endgame."