As prospects of Brexit firm up, a fresh weakening in the pound is pushing the FTSE 100 Index of U.K. megacaps close to a record. Not that foreign investors, who own more than half the nation’s equities, are rejoicing.
While the British equity benchmark has surged 12 percent this year in local currency, it has declined more than 2 percent in dollar terms, the biggest underperformance since the global financial crisis. Exporters advanced on Monday as the pound tumbled after Prime Minister Theresa May said she’ll start the process of withdrawing the U.K. from the European Union by March 2017. On Tuesday, FTSE 100 futures traded higher at 7:52 a.m. in London as the currency sank to its weakest since 1985.
Local investors have seen the value of their holdings increase as companies including drug maker AstraZeneca Plc and whiskey company Diageo Plc, which get most of their revenue outside the U.K., rallied after June’s secession vote sent the pound tumbling. Remove the currency halo, and the FTSE 100 is still below the level it was at before the decision. That’s bad news for overseas investors, if they haven’t hedged to account for the sterling effect. North America accounts for 46 percent of all foreign holdings, according to the latest government report published last September.