Looking for the best stock market in which to invest? Unbelievable as it might sound, London's FTSE 100 Index is proving to be the best performing exchange among the world's major stock markets.
Despite the fear and anxiety that preceded and immediately followed the UK leaving the European Union, UK’s premier stock index has not only bounced back from the post-referendum shock when it plunged 9% and wiped out $3 trillion off stocks in just a couple of days, but is actually trading 8% higher than on June 23rd, Brexit’s referendum day.
In a possible explanation for the surprise rebound, Holger Schmieding, chief economist at Berenberg bank posits that although Brexit was a shock to the overall UK. economy because it may make the country a much less attractive place to invest, the “economy and companies listed on a country's stock exchange are very different things."
This all seems very heartening but in reality it is not as impressive as it sounds. UK stocks are up in local currency terms, but they're worth less in dollars since the pound has dropped 13% against the dollar since referendum day. And measured in euros, the FTSE is down 5.6% so far this year. That's worse than Germany's DAX, which has slipped 2% in 2016.
Cheap Pound Good for Foreign Trade
On the positive side, the cheap pound is helping in other ways. Many of Britain's top 100 companies do most of their business abroad and list their revenues in dollars. The broader market also includes many exporters, who are getting a boost from the weaker currency.
The FTSE 100 index is heavily weighted towards mining and oil and gas companies and these have bounced back big time this year thanks to rising prices of commodities, especially gold, minerals and oil. Gold has risen 27% and oil has also rallied from $27 a barrel to its current price of $43.
BOE Cash Injections
In addition, investors have also been encouraged by a new shot of central bank cash into the markets which have driven down yields on bonds.
To help matters along, the Bank of England cut interest rates last week for the first time in seven years, and said it was ready to do even more if necessary, including reviving a broad stimulus program to try to prevent Brexit tipping the U.K. economy into recession.
In fact, the BOE is not the only bank suffering at the moment. Many of Europe's top banks have lost half their value in a year with institutions such as Deutsche Bank (DB), Barclays (BCS), Credit Suisse (CS) and Allied Irish Banks (AIBSF)reporting some of the biggest losses.