How Did The UK Blue-Chip Index Perform Since Brexit Referendum?

After approximately 43 years of being a member of the European Union (EU), Britain decided to leave the EU bloc on June 23, 2016, through a referendum. The referendum was won by pro-Brexiteers by a margin of 52% against 48% who wanted to remain in the EU. Also, the turnout of the Brexit referendum was significantly high at 72% with approximately 30 million people who took part in the voting. Approximately 17.4 million people voted in favour of the Brexit.

However, UK’s withdrawal from the EU bloc has been delayed twice, as it was earlier slated to exercise the exercise the option on March 29, 2019, exactly after two years the then British Prime Minister Theresa May invoked Article 50 as on 29-March-2017. Article 50 amendment is made for an EU member, whosoever desires to move out of the bloc; it is a legal process to initiate withdrawal from the bloc and start negotiations with EU lawmakers.

On the referendum day (June 23, 2016), the blue-chip index of the London Stock Exchange the FTSE 100 ended 1.2% above its previous close at 6,338.1 but pared all gains on the very first trading session post-referendum and tumbled 3.1% to 6,138.69 in the June 24, 2016 trading session.

FTSE 100 vs FTSE 250 (Large-Cap vs Mid-Cap) – Since Brexit Referendum

Since the Brexit referendum day, the broader index of the UK the FTSE 100 index handed a return of approximately 11.9%, whereas the FTSE 250 index has handed 12.08%, which reflects that the mid-caps have surpassed returns of large-cap companies. Also, since the date of Brexit referendum the FTSE 100 ended 431 times higher and 399 times lower against the respective previous-day closing prices; UP/Down ratio of the FTSE 100 index stood at 431/399 or 1.08. For the mid-cap index FTSE 250 ended 446 times higher and 384 times lower against the respective previous-day closing prices; Up/Down ratio of the FTSE 250 index stood at 446/384 or 1.16, which clearly reflects that FTSE 250 performance since the Brexit referendum was ahead of FTSE 100 performance during the same period.

Also, in the last six-months FTSE 100 underperformed against the FTSE 250, as the broader index plummeted 4.54% against the mid-cap benchmark FTSE 250 which declined only by 0.81%.

However, there are 19 FTSE 100 stock, which has delivered price return of more than 45% in the past 3-years, with Ocado Group PLC (Up 391.4%), London Stock Exchange Group PLC (Up 143.3%), AVEVA Group PLC (up 171.2%), Rentokil Initial PLC (Up 101.0%), JD Sports Fashion PLC (Up 143.4%), EVRAZ Plc (142.8%) being the top performing FTSE 100 companies on the London Stock Exchange. On the other side, Future PLC (Up 1,060.2%), Games Workshop Group PLC (Up 828.0%), Softcat PLC (Up 233.4%), EI Group PLC (Up 202.4%), Kainos Group PLC (Up 151.0%) are the top performing FTSE 250 companies on the London Stock Exchange during a similar period.

However, in percentage terms, 19% of the FTSE 100 companies delivered a price return of above 45% in the past three years whereas 16% of the FTSE 250 companies were handed shareholders return above 45%.

FTSE 100 vs Global peer Indices

In the past three years, the global benchmark indices like S&P 500, Nasdaq Composite have performed quite well against the FTSE 100 index, as S&P 500 index has delivered approximately 33.61% in absolute terms, whereas the broader index of the UK handed just 1.48% returns in the same span of time. The technology benchmark index of the United States, the Nasdaq Composite has surged approximately 46.87% in the past three years. It reflects clearly that, the UK blue-chip index has not participated in the previous bull rally, where other benchmark indices have soared massively.

However, in terms of valuation and dividend income, the FTSE 100 companies look more promising compared to the global benchmarks, as at the current trading level (as on October 03, 2019), the FTSE 100 index was trading at a price-to-earnings ratio of 14.08x, whereas its peer S&P 500 was quoting at a price-to-earnings ratio of 20.15x; also the dividend yield of the FTSE 100 index was quoting at 4.73%, whereas the S&P 500 index’s dividend yield stood at 2.48% respectively. Therefore, from the valuation and dividend perspective FTSE 100 index is offering greater value to the investors compared to the S&P 500 index.

Post Brexit Scenario  

Britain is scheduled to move out the EU bloc as on October 31, 2019. However, with inflated probabilities of a no-deal Withdrawal of the UK, Members of the House of Commons from different political parties have voted for a law that forces British Prime Minister to negotiate a third Divorce date extension.

A no-deal Brexit could affect the ordinary course of business for economic entities and ordinary people as well. If British Pound decline further in response to a disorderly exit of Britain from the European Union, this could lead to a reduction in Sterling’s purchasing power against the basket of major foreign currencies and could cause an economic recession-kind of environment in Britain.

Also, a disorderly exit could cause significant delays at the ports, which could impact the price and availability of food. Around 30% of country’s food comes from the EU states.  Many are also estimating a potential shortage of medicines, although British government has prepared itself to deal with this.

Economic slowdown is imminent post Brexit. But many Eurosceptics have commented that it is really hard to predict the exact outcome post-Brexit and believe that any turmoil will not live long and could be fixed in the short term.

Brexit- Recent development

With 28 days left for the UK Withdrawal from the EU bloc, Prime Minister  Boris Johnson presented a last divorce deal to the EU bloc on October 02, 2019 (Wednesday) and commented that unless the EU members compromise, Britain will move out from the bloc without any formal arrangement with the EU bloc ,on the scheduled date of Brexit, October 31 2019. The “final Brexit offer” pushed leading indices of the LSE lower.

At the time of writing (as on October 03, 2019, at 12:20 PM GMT, before the market close), the FTSE 100 extended October 02, losses and was quoting 34.20 points or 0.48% lower at 7,088.34, with Diageo Plc, London Stock Exchange Group PLC and Admiral Group PLC being the top-performing stocks at the FTSE 100 index, whereas DS Smith PLC, Kingfisher PLC and Taylor Wimpey PLC being the laggards on the FTSE 100 index.