Tumbling pound, virus strategy, Brexit fears lead to heavy slide in UK domestic stocks
Reuters
Published Mar 19, 2020 16:32
Tumbling pound, virus strategy, Brexit fears lead to heavy slide in UK domestic stocks
By Julien Ponthus and Thyagaraju Adinarayan
LONDON (Reuters) - A falling currency, doubts about the UK government's response to the coronavirus crisis and fresh fears of leaving the European Union without a trade deal are prompting investors to ditch shares of companies exposed to the local economy.
The FTSE 250 index (FTMC), home to mid-sized UK stocks, has sharply underperformed British blue chips and other major European bourses since the coronavirus broke out.
The index has fallen by 43% from its Feb. 19 peak, compared with a 33% drop for the FTSE 100 index (FTSE) and 36% for the pan-European STOXX 600.
The losses are also a bit sharper than in France, Italy and Spain, which have already implemented extreme measures such as entire city lockdowns.
This trend could be seen on Thursday as well: By mid-afternoon the FTSE 250 was down 3.5% while most European bourses and the FTSE 100 were in positive territory.
Some market commentators believe the fall is partially attributable to the UK's response to the crisis.
"Initially markets were more concerned about the effect of the virus on economies outside the UK, but the implementation of more stringent containment measures in the UK over the last week has made clear that the domestic economy will also take a hit," said Mike Bell, global market strategist at J.P. Morgan Asset Management.
Joshua Mahony, senior market analyst at IG, wrote to his clients on Monday that investors had doubts about the government's strategy.
TRIPLE WHAMMY
"With the domestically focussed FTSE 250 being hit hard this morning, there is clearly a perception within the trading community that the UK strategy is riskier and could result in a more significant economic impact despite the current lack of a hardline shutdown seen elsewhere".
Some well-known names such as bus operator National Express (L:NEX), Restaurant Group (L:RTN), pub operators Mitchells & Butlers (L:MAB) and Marston's (L:MARS) have now all lost more than two-thirds of their value this week alone.
"A number of mid-caps have also issued downbeat earnings outlook statements this week and in some cases cancelled planned dividend payments, which has added to shareholders’ woes," AJ Bell Investment Director Russ Mould said.
The consensus view is that it's a triple whammy: the virus response, faltering sterling and the never-ending Brexit saga.
"Concerns of a no trade deal Brexit are resurfacing as the June deadline to extend is approaching while UK and EU negotiations appear to have made little progress", said Emmanuel Cau Head of European Equity Strategy at Barclays (LON:BARC).
Get The App
The weakness is also a ripple-effect of the falling pound, which hit lows on Wednesday not seen since 1985 and exacerbates the spread between the FTSE 100 and the FTSE 250.
"It’s been quite an extreme drop in the currency, and with so much of the revenue in the FTSE 100 coming from outside of the UK, the weaker currency is often a supportive factor", argued Craig Erlam, senior market analyst at Oanda.
Written By: Reuters
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.