Market cynics sunk by Brexit buoyancy
STOCK markets have enjoyed a buoyant three months to defy the doom-mongers who claimed Brexit would destroy share prices.
Investors who kept faith with UK plc have been amply rewarded with the FTSE recovering strongly following the initial referendum shock.
Investor confidence has hit a new high for 2016, according to the latest Lloyds Bank Investor Sentiment Index.
Markus Stadlmann, chief investment officer at Lloyds Private Banking, said: “All UK asset classes have increased in sentiment, signalling that investor confidence in the UK economy is rebounding.”
Recent volatility is largely because of troubles elsewhere, such as the crisis engulfing Deutsche Bank in Germany, and uncertainty over the outcome of the US presidential election.
Laith Khalaf, senior analyst at Hargreaves Lansdown, said that three months after Brexit the FTSE 100 is poised just below the 7,000 mark, dramatically higher than the low of 5,537 it slumped to in February, when most analysts expected the UK to vote to remain in the EU.
He added: “Even the mid cap FTSE 250 index, which suffered a price shock in the wake of Brexit, has recovered to post a strong return over the summer, while smaller UK companies have also performed well.”
Blue-chip stocks have been the biggest winners as they have cashed in on the fall in the value of the pound, which has dropped approximately 15 per cent since the referendum. It means their earnings are worth more when converted back into sterling.
Jordan Hiscott, chief trader at Ayondo Markets, said Brexit was supposed to be terrible news for UK stocks, but the opposite is true: “This is largely due to the fact that FTSE 100 blue-chip stocks generate around three quarters of their income overseas, despite being listed in the UK.
“Pharmaceutical stocks, in particular, have fared extremely well, with AstraZeneca and GlaxoSmithKline both up around 20 per cent,” said Hiscott.
Even companies that crashed in the immediate aftermath of the referendum are fighting to recover. Hiscott added: “We have not even started negotiations to leave the EU so nothing has really changed, company share prices fell because of what people perceived might happen.”
Shares in housebuilders such as Taylor Wimpey, Berkeley Group and Barratt Developments initially crashed over fears that Brexit could destroy house prices as foreign buyers abandoned the UK.
Hiscott said they have fought back strongly as property values continue to rise: “Barratt, for example, has climbed an astounding 46 per cent since its post-Brexit low.
“Insurance company Legal & General’s shares have also rebounded 40 per cent after fears that its exposure to a slowing UK economy have proved false.”
Helal Miah, investment research analyst at The Share Centre, said other blue chips continue to power on: “Major household goods companies Unilever and Reckitt Benckiser, and defence company BAE Systems, have all benefited from the fall in the sterling.”
However, he warned that insurance companies and the big banks could struggle if they lose the right to trade in the EU under “passporting” rules in the wake of a hard Brexit.
October can be a turbulent month for stock markets, but with German banks facing bankruptcy and the China credit and property bubble threatening to burst, the UK is the least of the world’s worries.