Take a look
Two years after the referendum the disparity between the performance of UK-focused stocks and internationally-focused stocks is almost at a record high.
KPMG created two indices to measure the impact of the vote to leave the EU on UK stocks and to understand the relative sentiment towards UK-focused companies and their more international peers since the vote result was announced:
The KPMG Non-UK50 is made up of the UK’s largest listed firms from the FTSE 100 and 250 that derive more than 70 per cent of revenues from abroad.
The KPMG UK50 includes the largest listed firms from the FTSE 100 and 250 that derive more than 70 per cent of their revenues from the UK.
Since the EU referendum in June 2016, the difference between the two indices remains stark: while the KPMG UK50 is 4 per cent below its level prior to the referendum the KPMG Non-UK50 gained 35 per cent over the same period. The main driver behind the difference in fortunes has been the pound’s exchange rate, which in trade weighted terms is still 11 per cent down since the referendum (see Chart 1 above), increasing the relative value of foreign earnings, therefore benefitting the KPMG Non-UK50 index.
Adjusted to remove the effect of the weaker pound, the performance of the KPMG Non-UK50 has been less stellar over that period. Comparing both KPMG indices in US dollar terms against the FTSE All World index (also in dollars), investors seem to value the prospects of companies listed in the UK less highly, even if the majority of their business is overseas. Since June 2016, the value of the FTSE All World has risen by 25 per cent, versus 20 per cent for KPMGNon-UK50 and -15 per cent for KPMG UK50, all in dollar terms.
KPMG anticipates that the outlook for the next year may be more mixed. While the pound is expected to remain relatively weak, the prospect of an escalating trade war could hurt a significant proportion of our KPMG Non-UK50constituents. These companies are also potentially more vulnerable to a cliff-edge Brexit, as they tend to have supply chains that are more deeply integrated with the EU.