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What Do Experts Think of the UK Stock Markets?

As at 4 July 2017, the FTSE 100 index – the UK’s premier all share index – was trading at 7,357.23, down 0.27% or 19.86 points. Over the past 1 year, the FTSE 100 index has rallied by 12.80%. If we look at the 52-week trading range of the UK all share index, it has performed remarkably well from its low of 6,432.47. On the upper end of the spectrum, the FTSE 100 index topped out at 7,598.99 recently. When experts evaluate the performance of the FTSE 100 index, they look at the constituents of the index, and the weighting of each of these components. If we look at the percentage change in value of index constituents over 1 year, the following companies are up the most:

  • 3i Group PLC (up 59.84% at 893.50 P)
  • Antofagasta PLC (up 71.35% at 823.50 P)
  • Barclays PLC (up 51.56% at 206.95 P)
  • Carnival PLC (up 50.03% at 5065.00 P)
  • G4S PLC (up 82.90% at 326.30 P)
  • Glencore PLC (up 86.54% at 303.60 P)
  • HSBC holdings PLC (up 55.62% at 721.70 P)
  • International Consolidated Airlines Group SA (up 63.20% at 612.00 P)
  • Persimmon PLC (up 59.65% at 2291.00 P)
  • Royal Bank of Scotland PLC (up 52.72% at 255.80 P)
  • James Place PLC (up 50.79% at 1195.00 P)
  • WorldPay Group PLC (up 53.04% at 408.00 P)

The reason we are seeing bullish sentiment driving the FTSE 100 index, in the face of overwhelming geopolitical uncertainty for the UK, is GBP weakness. Consider for a moment the exchange rate of the GBP/USD pair on the date that Britons voted for a Brexit, and the current exchange rate. On June 23, 2016, the GBP/USD pair was averaging 1.4879. Today, the GBP/USD pair is trading at 1.2921. That means that for every £1 that you had on June 23, you would get $1.4879, but today that same £1 is only worth $1.2921.

The reason this has such a dramatic effect on the FTSE 100 index is simple: Approximately 70% of the companies trading on the FTSE 100 index derive their revenues in Europe and abroad. This means that foreign currency earnings are worth more per unit in GBP terms than they were a year ago. This increases the repatriated earnings in GBP, and also serves to boost the share prices of these companies. In short: trading experts like Stanley N Phillips advise traders to follow the movements of the GBP vis-à-vis the FTSE 100 index. A strong inverse relationship currently exists between the performance of the sterling and the performance of the FTSE 100 index.

How Should Traders Compare the FTSE 250 Index to the FTSE 100 Index?

When we evaluate the performance of the FTSE 250 index, it’s a different story. The FTSE 250 index lists companies that are primarily based in the United Kingdom and derive their profits at home. The FTSE 250 index is currently trading at 19,301.47. On June 23, 2016, the FTSE 250 index was trading at 17,333.51. That means it has gained 1,967.96 points in 1 year, for an overall percentage appreciation of 11.35%. This is slightly less than the FTSE 100 index.

This perplexing performance of the domestic stock market is attributed to the resilience of listed companies and the GBP. After the GBP plunged to a 31-year low against the greenback post-Brexit, it’s slowly clawed its way back to respectability. This helped domestic companies with their import purchases, and maintained a modicum of respectability on the bourses. In 2017 alone, the FTSE 250 index has outperformed the FTSE 100 index by approximately by 8.21% versus 1.28%. Domestic factors such as a stable UK government, a calm Bank of England, and a carefully mapped out Brexit negotiations strategy will certainly benefit the GBP and the FTSE 250.