By Kit Rees
LONDON (Reuters) - More than 60 percent of institutional investors expect to maintain their holdings in UK assets over the next six months, according to State Street Corp's <STT.N> "Brexometer," a sentiment survey the firm launched on Thursday.
State Street Corp <STT.N>, a U.S. custody bank with $2 trillion in assets under management, added that fewer than a third of investors believed that asset owners would decrease risk levels over the next three to five years.
State Street's Brexometer is a quarterly survey of institutional investor sentiment toward the UK's divorce from the European Union, a process Britain is seeking to trigger in March later this year.
On Tuesday, UK Prime Minister Theresa May said that Britain will leave the EU single market, setting a course for a "hard Brexit".
State Street surveyed 111 institutional and alternative investors, including hedge funds, real estate and private equity between 12 December 2016 and 4 January 2017.
"Questions over timing of the UK’s ultimate split from the EU and the nature of their future relationship still linger and have the potential to weigh on both the economy and the pound," said Michael Metcalfe, head of global macro strategy at State Street Global Markets.
"Nevertheless, thus far at least, the extremely gloomy pre-Brexit predictions for the UK economy and asset markets look well off the mark,” Metcalfe said.
Beyond asset allocation decisions, however, the impact of UK's decision to leave the EU is likely to be felt notably on regulatory reporting requirements while 80 percent of the investors surveyed said Brexit will have an impact on their operating model.
Roughly 2 percent of the respondents said their holdings of UK assets are likely to decrease significantly while 8 percent were undecided at the time of the survey.
Britain's Brexit vote sent markets tumbling, with the pan-European STOXX 600 <.STOXX> dropping 7 percent and the FTSE 100 <.FTSE> falling 3.1 percent on June 24 2016, the day after the referendum.
However, both have snapped back since with the exporter-heavy UK bluechip index hitting record highs earlier this month largely on the back of the impact of a significantly weaker sterling. In US dollar terms, however, the index is still nursing losses from pre-referendum levels.
Sterling <GBP=>, however, has lost nearly 18 percent of its value against the U.S. dollar since last June's Brexit vote. Trading in the currency has been punctuated by particularly sharp bouts of volatility, raising concerns that international investors might lose appetite for sterling-denominated assets.
Graphic on sterling: http://tmsnrt.rs/2hwV9Hv
Broader European equity markets struggled relative to other developed markets last year as sluggish growth and a busy political calendar pushed investors looking for better returns elsewhere.
(Reporting by Kit Rees, Editing by Vikram Subhedar)