How Brexit vote has shaped markets six years on


It is almost six years since the UK’s Brexit vote on 23 June 2016. As the Government prepares to scrap its own Northern Ireland protocol, GDP growth figures totter and energy and food security become hot topics, investors and savers are still trying to pick through the noise to work out whether they are better off or not.

The pandemic, Russia’s invasion of Ukraine and central banks’ ongoing monetary policy experiments mean it is hard to identify cause and effect but what you can say is this: since Brexit, commodities have been a better place to be than equities; the UK stock market has underperformed its global peers, despite nine takeover approaches for FTSE 100 members; and the pound continues to trade well below pre-poll levels.

Six years on, it is becoming ever clearer that Brexit will be a long process, rather than a single event, something made clear in the latest tangle involving Northern Ireland’s trade flows.

Customs checks and delays remain an unresolved area, as do fishing rights, the lack of a clear deal with the EU for financial services and the complexities regarding issues such as tariffs and point of origin for manufacture.

On the other hand, the UK was way ahead of the EU when it came to sourcing and approving vaccinations for COVID, cities such as Sunderland and Coventry are attracting foreign investment in industries such as autos and electric vehicles and the City’s pre-eminence in clearing is yet to be challenged, after a proposed extension of equivalence until 2025.

This lack of clarity could be one explanation as to why, compared to the major asset classes, UK equities have been a clear laggard since the Brexit poll, even if the referendum result has not been the only factor. This may be down as much to the FTSE 100’s make-up, and its reliance on miners, oils and banks, rather than the tech stocks which proved ideal for a low-growth, low-inflation, low-rates environment, which the Bank of England’s post-vote interest cut and additions to QE served to foster.

Ultra-cheap money and a tidal wave of liquidity, to which the Bank of England has contributed (albeit much more modestly than the Federal Reserve, Bank of Japan or European Central Bank) have gone a long way to fostering rampant speculation, as can be seen in the post-referendum performance of Bitcoin, and also inflation, as suggested by how real assets (commodities) have outperformed paper ones (bonds and equities). All that was needed for a damaging inflation spike was an exogenous shock to meet the endogenous danger. Granted, Russia’s invasion of Ukraine lit the inflationary touch paper, but central banks had already piled up the dynamite in the form of years of cheap money.

  Capital return since 23 June 2016*
Bitcoin 4549.5%
Oil 141.5%
Bloomberg Commodities 107.1%
FTSE Developed Equities 55.4%
FTSE All-World Equities 50.6%
Gold 47.1%
MSCI Emerging Equities 26.2%
FTSE 100 14.1%
MSCI Frontier -9.2%
Global Corporate Bonds -10.6%
Global High Yield Bonds -12.5%
Global Sovereign Bonds -16.9%

Source: Refinitiv data

A weak pound may be a further complicating factor for the UK as it wrestles with inflation that stands at a 40-year high. The last time retail price inflation (which offers a longer dataset than the CPI or CPIH benchmarks) stood at 11.1%, the UK base rate was 14%, to further emphasise the difficult position on which the Bank of England has placed itself, courtesy of 13 years of unorthodox policy.

Sterling has never really come close to recapturing the ground it lost in the immediate aftermath of the Brexit vote. Sterling went into the result trading at $1.48 and €1.30, compared to today’s $1.23 and €1.17. This may be the financial markets’ ultimate verdict on the outcome of Brexit to date, especially as the third Prime Minister to hold office since the ballot faces opposition from his already-fractious party over plans to rip up his own Northern Ireland protocol.

Source: Refinitiv data

However, the weak pound has had two potentially positive effects, at least from the narrow perspective of investment. The pound’s plunge has increased the value of the FTSE 100’s overseas earnings, which represent about two-thirds of the total, and it has lured predators to British shores. Nine FTSE 100 firms have been taken over since the Brexit vote, thanks to the cheap pound and UK equities’ underperformance, which has left the UK market looking cheap compared to many of its overseas counterparts on a yield and earnings basis. Those nine are: ARM, Worldpay, GKN, Sky, Shire, Merlin Entertainment, Randgold Resources, RSA and Morrisons

Even so, the UK stock market has lagged on the global stage.

Rank Country Stock Index Capital return since 23 June 2016 (%)
1 USA NASDAQ Composite 131.0%
2 Brazil BOVESPA 108.0%
3 India S&P BSE 100 96.5%
4 USA S&P 500 84.6%
5 USA Dow Jones Industrials 74.3%
6 Japan Nikkei 225 71.3%
7 Global FTSE All-World 50.6%
8 UK FTSE SmallCap 42.8%
9 Switzerland SMI 36.7%
10 France CAC-40 36.1%
11 Australia ASX 200 35.6%
12 Russia RTS 32.6%
13 Germany DAX 32.0%
14 Korea KOSPI 30.7%
15 UK FTSE AIM All-Share 29.3%
16 UK FTSE All-Share 14.8%
17 UK FTSE 100 14.1%
18 China Shanghai Composite 13.6%
19 UK FTSE 250 11.3%
20 Hong Kong Hang Seng 1.0%

Source: Refinitiv data

Within the UK market, dollar and overseas earners have generally done best, while domestic plays have lagged. Although the pandemic and the disruption it caused to both demand and supply chains means it is unwise to be too dogmatic about Brexit being the sole influence here.

Best and worst FTSE 350 sectors since 23 June 2016
Rank Top 10 Capital return
1 Industrial Metals & Mining 465.0%
2 Leisure Goods 189.0%
3 Electronic & Electrical Equipment 87.3%
4 Beverages 71.1%
5 Pharmaceuticals & Biotech 68.0%
6 Closed-End Investments 51.2%
7 Industrial Engineering 48.1%
8 Personal Care 46.3%
9 Support Services 36.3%
10 Health Care 35.8%
Rank Bottom 10 Capital return
29 Life Insurance -9.9%
30 Real Estate Investment Trusts -12.1%
31 Food Producers -25.4%
32 Household Goods & Home Construction -25.7%
33 General Retailers -26.5%
34 Tobacco -29.0%
35 Travel & Leisure -29.4%
36 Telecoms Services -36.3%
37 Autos & Parts -70.4%
38 Telecoms Equipment -85.8%

Source: Refinitiv data

These trends can also be seen in individual stock performance, where dollar and commodity plays have excelled. Perceived growth stocks, or plays upon them, such as Ocado and Scottish Mortgage, have also had a stunning run, although they have lost their lustre of late amid fears over inflation and rising interest rates, both of which represent the direct opposite of the environment in which they did so well for so long.

Best and worst FTSE 100 performers since 23 June 2016
Rank Top 10 Capital return
1 Anglo American 410%
2 Ashtead 272%
3 Ocado 258%
4 Glencore 221%
5 Antofagasta 221%
6 Dechra Pharmaceuticals 199%
7 RS Group 197%
8 Scottish Mortgage IT 179%
9 Spirax-Sarco Engineering 175%
10 Rio Tinto 169%
Rank Bottom 10 Capital return
86 Hargreaves Lansdown -43.8%
87 Associated British Foods -44.1%
88 WPP -47.7%
89 Royal Mail -50.1%
90 Imperial Brands -52.3%
91 BT -59.5%
92 Rolls-Royce -60.3%
93 International Consolidated Airlines -66.5%
94 ITV -69.5%
95 Harbour Energy -75.9%

Source: Refinitiv data. Based on current FTSE 100 membership. Twenty-nine firms have left the index since the Brexit vote: ARM, Babcock, BHP, Capita, Carnival, Direct Line, Dixons Carphone, easyJet, GKN, Hammerson, INTU, ITV, Johnson Matthey, Marks & Spencer, Mediclinic, Merlin Entertainment, Morrisons, Old Mutual, Provident Financial, Randgold Resources, Rexam, Royal Mail, SAB Miller, Shire Pharmaceutical, Sky, Travis Perkins, TUI, Wolseley (Ferguson as it is now) and Worldpay.

*All performance data as at week ending Friday 10 June

These articles are for information purposes only and are not a personal recommendation or advice.

russmould's picture
Written by:
Russ Mould

Russ Mould has 28 years' experience of the capital markets. He started at Scottish Equitable in 1991 as a fund manager and in 1993 he joined SG Warburg, now part of UBS investment bank, where he worked as equity analyst covering the technology sector for 12 years. Russ joined Shares in November 2005 as technology correspondent and became Editor of the magazine in July 2008. Following the acquisition of Shares' parent company, MSM Media by AJ Bell Group, he was appointed AJ Bell’s Investment Director in summer 2013.