The stock market bounce back from the March coronavirus sell-off that sent equities crashing around the world has been weaker in the UK than any other major development market. With 2 trading days to go until the end of the second quarter, figures show that the LSE’s gains over the past 3 months have fallen short of those achieved by international rivals from Wall Street to Tokyo. That includes major European markets including the Frankfurt stock exchange.
Since the beginning of April, the benchmark FTSE 100 index of the LSE’s 100 largest companies by market capitalisation has risen by just 8.6%. That compares unfavourably to a 21.7% climb for Germany’s Dax 30, 16.4% gain for the S&P 500 and Japan’s Nikkei 225’s 19% return.
Analysts are attributing the sluggish recovery to continuing uncertainty around the economic impact Brexit will have and the UK coming more slowly out of lockdown. Fears of a second wave of Covid-19 have also recently weighed on the share prices of London-listed companies.
The USA has also been hit particularly badly by the coronavirus pandemic but aggressive government spending across the Atlantic has fuelled a stronger recovery on Wall Street. The Fed has committed to a rescue package worth around 13% of the USA’s GDP compared to 4% in the UK.
Steven Wieting, chief investment strategist and chief economist at Citi Private Bank, comment:
“Really there has been no loss to personal income in the US. Initially it seemed quite promising that there would be a larger fiscal offset in the UK, but that didn’t emerge.”
Wall Street’s tech-centric Nasdaq has been the major international index with the strongest performance over the 2nd quarter. A 26.7% gain has it on track for its most impressive quarter since 2001 and it has actually now moved above its pre-sell-off level to set new record highs last week.
The lockdown period has been a plus for many tech companies, with demand for computer hardware and software, cloud services and ecommerce rising. Tech giants in these sub-sectors of the industry, including Alphabet, Amazon, Apple, Facebook and Microsoft have all seen their share prices rise. The big 5 of tech also make up around 20% of the S&P 500’s weighting, which has helped boost its returns in a way the FTSE 100 has now benefitted from. Many of the biggest companies in UK’s benchmark index are in sectors such as energy, commodities and finance, which have all suffered.
The bright side to the slower pace of the UK’s stock market recovery is that British companies now look distinctly cheap compared to international rivals. That offers the possibility of stronger gains in future, as London plays catch-up with other markets around the world. Sharon Bell of Goldman Sachs believes that is certainly a possibility but relies on three factors falling into place:
- Positive momentum in Brexit transition negotiations.
- A recovery in oil prices.
- Domestic economic improvement continues.
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