Brexit market update – winners and losers since the referendum
As the UK triggers Article 50 and begins its withdrawal from the EU, here are the scores on the doors in key UK markets since the referendum vote on 23rd June 2016.
- Cash ISA rates have halved since the referendum
- £13 billion more in cash accounts paying no interest
- UK stock market is up 17.8% since the day of the referendum
- Small caps beat blue chips and mid caps
- Top 10 and bottom 10 within the FTSE 100
Laith Khalaf, Senior Analyst, Hargreaves Lansdown:
‘The main effects of the Brexit vote so far have been on UK interest rate policy and the pound, which have led to very contrasting fortunes for cash savers and stock market investors.
Since the EU referendum, interest rates and inflation have headed in opposite directions, putting even more of a squeeze on cash savers. Despite rising inflation, weak wage growth means the Bank of England looks in no mood to raise interest rates any time soon, so cash savers are left in the uncomfortable position of watching their money decline in real terms.
By contrast the UK stock market has prospered, thanks in large part to the weakening of sterling following the EU referendum. While this currency bonanza doesn’t equate to better operational performance from all of the businesses involved, it is nonetheless a real and tangible gain for UK-based investors, whose wealth has enjoyed a Brexit boost.
The rise in the stock market is not solely down to weaker sterling however. Higher commodity prices have also led to a strong recovery in resource stocks which make up a large proportion of the UK stock market. Meanwhile some companies in the index have, believe it or not, posted higher profits in the last nine months, currency aside, which has supported growth in their share price.
Of course there have been some Brexit casualties on the market too, most notably easyJet and Next, which have suffered from a lower pound and inflationary pressures, alongside other problems endemic to their respective industries.
The case for investing long term money in the stock market remains undiminished by Brexit. This year sees the twenty five year anniversary of another withdrawal from Europe, when the UK was forced out of the ERM, nonetheless since Black Wednesday the stock market has on average returned 9% a year for investors.
Overall the picture since the referendum has turned out better than many expected, but it’s still early days and we expect plenty of clamour to come. Investors shouldn’t be distracted by Brexit babble though; when all’s said and done they still need to fund their long term savings goals, in particular retirement, and being outside the EU doesn’t change that.’
Cash ISA rates halve
The average rate on Cash ISAs stood at 0.87% on 31st May 2016, the last data point before the referendum. That rate has now fallen to 0.43%, according to Bank of England data.
Meanwhile the amount of money held in cash accounts paying no interest has risen by £13 billion since Brexit, from £163 billion in May 2016 to £176 billion today. This compares with just £22 billion held in such accounts 10 years ago, prior to the financial crisis and the monetary policy response (Source: Bank of England).
By comparison CPI inflation has risen from 0.3% last May to 2.3% in February 2017, and is expected to rise further this year.
Rising inflation is bad news for cash savers, but it would normally at least prompt interest rate hikes from the central bank to soothe some of the pain. That is not on the cards at the moment, because the Bank of England is looking through the inflation generated by rising commodity prices and weaker sterling, and currently doesn’t think the UK economy can withstand higher rates.
Stock market returns
Since the EU referendum the FTSE All Share has returned 17.8%. The big blue chips which make up the FTSE 100 have risen 19.1%, ahead of the more domestically focused FTSE 250 companies which have lagged behind, posting an 11.3% return that would look handsome over most nine month periods.
Small caps, also domestically focused, have performed better than both the FTSE 250 and the FTSE 100 since the referendum last June, returning 19.6%. The main reason is small caps sold off to a much lesser extent than midcaps in the immediate aftermath of the referendum, but subsequently bounced back more than large caps.
The share prices of smaller companies are often driven by more company specific developments than large macro events, which may go some way to explaining this phenomenon. The lower liquidity of these stocks also means that investors tend to be long term by nature, and perhaps therefore more willing to ride out the volatility in the weeks following the referendum last summer.
|% total return
23rd June 2016 to 28th March 2017
|FTSE Small Cap||19.6|
Source: Thomson Reuters Lipper IM
Top and bottom 10 of FTSE 100
The top of the FTSE 100 since the referendum is a roll call of international earners and mining companies, with the latter seeing a double whammy of weaker sterling and higher commodity prices feeding through into rising share prices.
23rd June 2016 to 28th March 2017
|Anglo American PLC||75.4|
|Burberry Group PLC||56.4|
|Rio Tinto PLC||54.1|
|Ashtead Group PLC||53.5|
|HSBC Holdings PLC||44.2|
|Coca-Cola HBC AG||43.6|
|Smiths Group PLC||42.4|
The bottom of the FTSE since the referendum is more nuanced, with some stock specific problems also depressing share prices alongside some negative effects of Brexit. Real estate companies are the most obvious casualties of the Brexit vote, pushed lower by doubts over the UK property market, particularly in London.
EasyJet and Next have both been negatively impacted by weaker sterling and higher inflation. EasyJet has also been beset by overcapacity in the European airline industry pushing prices down, while Next has seen online competition ramp up from the likes of ASOS and Boohoo.com, as well as more traditional retailers who have upped their game.
Pearson has suffered a serious downturn in its US educational revenues, while BT has been hit by tighter regulation and an accounting scandal in its Italian division.
While Theresa May is sending an old fashioned letter to Brussels, most people are now using more modern forms of communication (has she not heard of the fax?!!). This trend, combined with weaker than expected performance from its parcel business and ongoing pension commitments, has left Royal Mail trailing at the back of the pack too.
23rd June 2016 to 28th March 2017
|Land Securities Group PLC||-12.9|
|Babcock International Group PLC||-14.2|
|Intu Properties PLC||-14.4|
|Mediclinic International PLC||-19.0|
|British Land Co PLC||-21.4|
|Royal Mail PLC||-22.3|
|BT Group PLC||-26.3|