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February 22, 2016 By: , No Comments

Heads Up: The FTSE 100 vs the SSE

The FTSE 100 index ended the week at 5,950.23. Its performance over the course of 1 year is -13.63%, worse than the performance of the Shanghai Composite index which posted an 11.87% decline over the past 1 year. The difference between the FTSE 100 index and the Shanghai composite index is easily seen over a 3-year period in that the SSE is actually performing better today – despite the major selloffs in 2015 and 2016 than it was back in 2013 and 2014.

The FTSE 100 index is markedly worse today than it was back in 2013, 2014 and 2015. This indicates that the bulk of negative global sentiment has adversely affected the UK economy far greater than it has the Chinese economy vis-a-vis equities markets.

Of course, the fundamentals of the UK economy are structurally sound, and the value that investors can achieve in the FTSE 100 index for example is substantial. It is interesting to point out that back on 27 April 2015, the FTSE 100 index was trading at 7,122.74, and it has fallen precipitously since then. In 2013 the FTSE 100 index gained 5.52% or 352.07 points. In 2014 the FTSE 100 index lost 2.72% or 182.87 points, and in 2015 the FTSE 100 index shed 9.13% or 597.57 points. The bearish sentiment on the FTSE 100 index has hit it hard from its constituent components. Some of the worst performing components of the FTSE 100 index for the year to date include the following companies:

  • Anglo American plc – -64.30%
  • Glencore plc – -58.03%
  • Standard Chartered plc – -54.94%
  • BHP Billiton plc – -50.02%
  • Aberdeen Asset Management plc – –19%
  • Pearson – -43.20%
  • Sports Direct International plc – -42.15%
  • Johnson Matthey plc – -31.96%

 

It should be pointed out that some of the worst performers in the FTSE 100 index are the mining companies which have taken a substantial hit as a result of China weakness, the oil price rout and the general slack performance of emerging market economies around the world. Additionally financial companies and Standard Chartered plc have also taken a huge hit, as have general banking stocks around the world. If we turn our attention to the best performing constituent components of the FTSE 100 index, some interesting selections come up, including the following:

  • Imperial Brands plc – +20.9%
  • Sage Group plc – +22.9%
  • Randgold Resources Ltd – + 26.5%
  • Persimmon plc – + 27.5%
  • Berkeley Group Holdings plc – +30.8%
  • Taylor Wimpey plc – +32.5%

 

Markets have been feeling the pinch of weak oil prices once again as the bulls on the FTSE 100 index are struggling to break free. As can be seen from weakness in mining and energy stocks, the UK equities market is not out of the woods just yet. As equities markets have weakened, there has been a move towards gold as investors seek out safe-haven assets. Many fund managers are encouraging clientele to diversify their portfolios with investments in gold stocks, ETFs and mining companies. But there are other concerns stressing the market now – talk of a Brexit. British Prime Minister David Cameron was meeting with heads of state from various European nations at the European Summit recently. The 2-day meeting in Brussels proved to be particularly beneficial to the UK after winning a ‘new settlement.’  This means that the June 23, 2016 referendum will have been bolstered with the concessions he won. Among others, Cameron negotiated several key reforms including the following:

  • Protection measures for the City of London
  • UK exemption from ever closer union

UK Prime Minister Confident After Summit

Now, Cameron will have to push hard to make the case to the conservatives in parliament. Various EU nations including Poland were against the UK premiere’s proposals, notably the one concerning restrictions on welfare payments to migrant labourers. The Tories were seeking a complete ban on in-work benefits to individual migrant labourers, but the discussions at the European Summit resulted in a 4-year restriction operable over a period of 7 years. The other compromise that the UK premier was required to make was on the issue of child benefits for migrant labourers. The UK Treasury has also been pushing hard to get the EU to implement protection measures for non-EU nations. This would have the effect of protection against discriminatory practices employed by EU member countries. But Cameron found it difficult with France’s Hollande who remained steadfastly against the City of London gaining veto authority over EU financial regulations. For Cameron it was a win-win; the UK remains its own authority while it enjoys unfettered access to the EU.

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