Brexit FTSE indices | KPMG | UK

KPMG Brexit FTSE indices: 2017 performance and outlook for 2018

Brexit FTSE indices

See what effect Brexit has had on the stock market. Every month, KPMG’s bespoke FTSE indices measure investors’ real appetite for UK stocks in the wake of the Brexit vote.

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KPMG Brexit FTSE indices: August performance - glass building with  sun rays

The indices

The KPMG Non-UK50 is made up of the UK’s largest listed firms from the FTSE 100 and 250 deriving more than 70% of revenues from abroad

The KPMG UK50 is made up of the UK’s largest listed firms from the FTSE 100 and 250 deriving more than 70% of their revenues from the UK

Performance in November and December 2017

  • The last two months of 2017 saw the KPMG Non-UK50 index rise by 3.1%
  • The KPMG UK50 index saw a more modest 2.3% rise 

Performance during 2017

  • The KPMG Non-UK50 index rose by 14% over the year 
  • By contrast, the KPMG UK50 index inched up 2.1%

Since the EU referendum in 2016

  • The KPMG UK50 has fallen 3%
  • The KPMG Non-UK50 has soared 38%

Adjusted to remove the effect of the weaker pound, the performance of the KPMG Non-UK50 has been less stellar, however. Comparing both KPMG indices in US dollar terms against the FTSE All World index (also in dollars), investors seem to value prospects of companies listed in the UK slightly less highly, even if the majority of their business is overseas. 

In dollar terms in the 18 months since June 2016, the value of FTSE All World has risen by 26% versus…

  • A 25% rise in the KPMG Non-UK50
  • A 12% fall in the KPMG UK50

Outlook for 2018

Momentum in the world economy remains positive for 2018, and this should support the earnings of companies in our KPMG Non-UK50 index. Commodity prices are also expected to stay firm, benefiting a significant part of the index. A key conundrum for this year is the exchange rate, which will impact the value of companies’ foreign earnings in sterling. The recently approved US tax deal, a more aggressive Fed response, and concerns about Brexit negotiations back home could all put a renewed pressure on the pound versus the dollar, which could boost the index even further. 

On the other hand, if changes in US policy are already priced in and Brexit negotiations run smoother than many expect, we may see a further pound rally and that would rein in some potential gains.

Top UK-focused companies captured in our KPMG UK50 index are expected to experience a generally more muted domestic economic environment than elsewhere, with the UK economy expected to grow at similar levels to 2017. This may mean we see a similarly lacklustre performance of the index this year. While banks, the largest constituency of the index, could benefit from a further rise in UK interest rates, real estate and retailers may suffer from investors’ jitters, and the index may also be vulnerable to shifts in expectations around the course of a Brexit deal.

Yael Selfin, Chief Economist at KPMG UK, commented:

“Despite ending the year on a high, 2017 was a relatively subdued affair for UK stocks, with the performance of our KPMG UK50 and non-UK50 indices continuing to diverge thanks to a pick-up in commodity prices, which helped boost an important share of the non-UK50 index.” 

“Looking ahead, strong world economic momentum, firm commodity prices, and a possible weaker pound, could see further divergence in fortunes for KPMG UK50 and KPMG non-UK50 indices in 2018, highlighting the importance for investors to identify the different drivers of UK-listed stocks.”

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