Brexit one year on: FTSE boosted as sterling suffers

It’s exactly one year to the day since one of the biggest political shocks of recent times unfolded before our eyes, as Britain bade goodbye to the European Union and rocked financial markets to their core as the plates of the Old Continent shifted irreversibly.

On the night of 23 June 2016, the pound fell almost 10% as it became clear that the Brexit campaign had triumphed, but how has it and other key markets performed in the 365 days since the crucial vote?

According to a report released by Hargreaves Lansdown, Brexit has had (and will continue to have) a significant effect on stock and currency exchanges since the Leave vote emerged successful last year.

HL analyst Laith Khalaf asserted that the rise in the FTSE 100 and sterling’s decline have gone very much hand-in-hand.

Khalaf said: “The main financial effect of Brexit has been felt in the pound, though weaker sterling has pushed up inflation and boosted the stock market. Holidaymakers have probably been the most obvious losers from Brexit so far, though inflation is also gradually ratcheting up the pressure on consumers more broadly.

The pound has fallen almost 14% against the US dollar since Britons voted to leave the EU in the vote.

“Overall, the UK stock market has performed very strongly since the EU referendum, though it’s actually a laggard compared to the return UK investors have received from overseas markets. That’s because weaker sterling has been one of the key drivers of the Footsie, and that currency boost is even more powerful for overseas markets, when returns are converted back into pounds and pence.”

FTSE CLIMBS HIGHER

The FTSE 100 has climbed 22.6% since the referendum, while the 250 index’s gains have been slightly weaker, pushing 17.2% higher.

Among the stocks which have come to the fore are those with a strong international presence, and those heavily linked to rising commodity markets such as oil.

Mining firms Glencore and Antofagasta have led the way over the last year on the Footsie, with their value being boosted by 82.5% and 74.9%, respectively.

Coca-Cola HBC has also benefited from the falling value of the pound, with its shares capitalising on Sterling's weakness and advancing more than 73.2% since last June.

Meanwhile, Khalaf points out that small cap stocks saw some of the strongest performances in the months following Brexit.

“The FTSE Small Cap index has surprisingly returned more than the FTSE 100. On the face of it this may seem like a sign of the strength of the domestic economy, however the headline small cap index is heavily populated with investment trusts, many of which invest in overseas equities,” Khalaf said.

NEGOTIATIONS UNDERWAY

With discussions between Theresa May’s government and European leaders now officially underway, investors will be keen to follow events closely in order to figure out how ‘hard’ or ‘soft’ the impending exit will be.

Khalaf doesn’t believe there should be any major reevaluation of investment strategies as a result of the talks.

“The performance of capital markets over the last year tells us that the financial effects of Brexit are about as predictable as the British weather.

“Investors should therefore stick to proven means of building up a decent nest egg, by squirrelling away as much as possible, maintaining a diversified portfolio, and using tax shelters to protect profits from the taxman.”