Home Latest News UK economy-centric stocks bounceback sees FTSE 250 recoup pandemic loss

UK economy-centric stocks bounceback sees FTSE 250 recoup pandemic loss

by Jonathan Adams
UK-economy

The FTSE 250 index, widely regarded as a bellwether for the domestic UK economy because unlike the constituents of the FTSE 100 the companies that comprise it earn a majority of revenues closer to home, has recovered to its pre-pandemic level. The index was boosted by yesterday’s announcement by Prime Minister Boris Johnson that shops and pub gardens will re-open in England from next.

A 1.2% gain for the day took it to 21,994.48 points, its strongest position since last February when the coronavirus sell-off saw it lose around 37% of its value by its March 20 bottom. The index has been gradually recovering since and after growth stalled last summer into early autumn, the FTSE 250 has gained almost a third since the start of November.

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The FTSE 100, the index of the 100 largest companies on the London Stock Exchange by market capitalisation also gained 1.2% yesterday but still sits around 8% off its pre-pandemic peak. The FTSE 250 is comprised of the 250 next largest London-listed companies by market capitalisation.

While a majority of the constituents of the FTSE 100 earn a majority of their income internationally, a majority of the companies that make up the FTSE 250 earn a majority of their revenues domestically. As a result, it is the FTSE 250 that is considered to be the more accurate barometer of the UK’s ‘real economy’.

The announcement non-essential shops and pub gardens are re-opening proved a particular fillip for FTSE 250 constituents in the leisure and hospitality sectors. Drinks company C&C, which owns the Bulmers Cider and Tennent’s brands, gained 5.5% yesterday while cinemas operator Cineworld was up 6.4%. Foreign travel rules for the months ahead may not yet be clear but that didn’t stop optimistic investors from sending the share price of cruise operator Carnival up by 5%.

The most significant moment in the FTSE 250’s road to recovery from the coronavirus crisis sell-off was “Pfizer Monday” in early November when the prospect of vaccines boosted investor confidence. It also received a boost just before Christmas on the announcement of a Brexit deal having been reached with the European Union.

One reason why the FTSE 100’s recovery has lagged that of its domestically-focused sister index is the boost to the pound that also resulted from a Brexit deal finally being reached. Because the internationally-focused FTSE 100 companies earn a majority of revenues and profits internationally in other currencies, a stronger pound translates into less income when converted back into sterling. It also makes UK exports comparatively more expensive. Around three-quarters of FTSE 100 revenues are generated in international currencies.

Over on Wall Street, the main U.S. indices dipped slightly yesterday after Monday gains saw the S&P 500 and Dow Jones industrial average set new records highs. The S&P 500 closed 0.1% down yesterday and the Dow 0.3%.



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This article is for information purposes only.
Please remember that financial investments may rise or fall and past performance does not guarantee future performance in respect of income or capital growth; you may not get back the amount you invested.
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