Brexit has split the London market in two

viewed as one. There are opportunities to bag bargains, but they are very stock-specific.

Since Brexit there has been a split in the London market – between those companies that make most of their earnings overseas and those that get the majority of revenues from the domestic market.

Analysts at Bats Indices have created the “Brexit 50/50” indices to measure the split between these two groups, and therefore the impact of the Brexit vote on British firms.

The two indices take Britain’s 100 biggest companies and split them in half on the basis of whether they derive most of their revenues domestically or abroad.

As the graph below shows, domestically focused companies have far under-performed those that make their earnings overseas since just before the EU referendum in 2016.

Part of this is a currency effect: the fall in sterling boosted overseas earners’ profits. But in part it is about Brexit-related fears, with investors concerned about the economy’s fortunes during the exit process and selling the stocks more exposed to it.

Brexit is not the only cloud hanging over the UK market – the uncertain political situation is also affecting sentiment. The prospect of Labour, which has threatened to nationalise a number of industries, coming to power is unsettling to investors.

“You have the Conservatives relying on the DUP [Democratic Unionist Party] and Labour waiting on the sidelines to see if the Tories implode,” said Colin Morton of Franklin Templeton, an asset manager.

This contrasts with America, where tax cuts are expected to boost corporate earnings and where underlying economic growth is good, and with Europe, where much of the political uncertainty of recent years has receded.

Mr Jennings added: “There are positive narratives attracting assets to the US and Europe, but the UK lacks a positive narrative at the moment. What we end up with is an environment where very clearly stock-specific opportunities have arisen out of generalisations that investors have been making.

“In a period of uncertainty investors tend to sell first and ask questions later. This has created an opportunity to buy quite good companies, which are profitable and growing, at low prices compared with companies in Europe or the US.”

Financials, and more specifically banks, are a good example.

Lloyds Banking Group, for example, is very domestically focused. It has a return on equity of around 14pc but its price to earnings (p/e) ratio is just nine and it offers a 7pc dividend yield.

By way of comparison, HSBC, a global but UK-listed bank, has a lower return on equity of around 9pc but trades on a higher p/e of 14 and offers a 5pc dividend yield.

However, Mr Morton warned investors not to be caught by “value traps”.

British retailers, for example, are out of favour and trading on cheap valuations. But the sector is vulnerable to a lack of wage growth in the economy, which inhibits consumer spending, and to the rise of online retailers.

“Some of the interesting value retail and consumer stocks are not as cheap as they look, as underneath the business has a real battle going on to get back to former levels of profitability,” Mr Morton said.