This week the Brexit saga had two more premieres: The House of Commons agreed to further scrutinize the law regulating the UK's withdrawal from the European Union (EU). Theresa May had never got this far. And Boris Johnson scored a rare parliamentary victory. His joy lasted only for a short time, as the members of parliament then decided to allow themselves more time to study the hundreds of pages of legalese. What happens next - surprise - is uncertain – though if you want to check out our current thinking, have a look at our latest CIO Flash on "With victories like this…".
It is no wonder that many people, including investors, are fed up with this spectacle. But they still have to take position on the stock exchange. That's why their reading of the drama can be well traced, as our "Chart of the Week" shows: Brexiteers point to the FTSE 100 as a sign of the resilience of the British economy (which indeed is higher today than it was before the Brexit decision in June 2016. However, that owes much to the interplay of a high export share of the index members (76% of sales) and a weak pound. Each pound depreciation increases the turnover achieved abroad when converted into pounds, which is reflected accordingly in the higher share price (in pounds). Expressed in euros, however, the FTSE 100 now roughly trades at pre-Brexit levels.
Not bad after more than three years of uncertainty, one might think. But our "Chart of the Week" also shows that other European markets have done significantly better over the same period. The difference is even greater if one compares indices that comprise companies with a focus on the domestic market ("local" indices). After all, in the UK these are considered to be the main victims of Brexit. As a result, the strong performance of the local UK index against the FTSE 100 since mid-August, shortly after Johnson took office and even more so since October 10, when Johnson and the Irish Prime Minister reached an agreement, mainly point to one thing: investors seem to appreciate every turn that makes a disorderly Brexit less likely. We don't rule it out completely yet, but we think the probability of a chaotic, "No Deal" Brexit has certainly shrunk further. We believe the UK local's race to catch up with the other indices may therefore well continue, at least for now.
|09/14 - 09/15||09/15 - 09/16||09/16 - 09/17||09/17 - 09/18||09/18 - 09/19|
|FTSE Local Germany Index||3.2%||-1.2%||31.5%||1.3%||4.0%|
|FTSE Local UK Index||6.0%||-7.1%||4.1%||-4.4%||-3.2%|
|FTSE Local France Index||-0.2%||-2.9%||21.2%||-3.1%||-5.3%|
|FTSE 100 Index||-8.5%||-13.8%||6.9%||1.9%||-1.4%|