- Britain’s benchmark share index, the FTSE 100, had its worst quarter since the financial crisis to begin the year.
- The FTSE 100 dropped as much as 8% in the first three months of 2018.
- A combination of a global market sell-off, uncertainty about Brexit, and a weaker dollar pushed the index down.
LONDON — Britain’s benchmark share index, the FTSE 100, had its worst start to a year since the financial crisis in 2018, losing almost 10% of its value as the global stock market rally runs out of steam.
“Data suggests the FTSE 100 is the worst performing major stock market index in the first quarter of 2018,” Russ Mould, investment director at AJ Bell said on Thursday.
After a strong 2017, in which it broke to all-time record highs on more than a dozen separate occasions, the blue-chip bourse has come back to earth spectacularly, losing more in Q1 of 2018 than in any other quarter since 2009, when the UK was in the midst of a recession and a financial crisis.
“The FTSE 100 looks on track to have fallen by 8.3% in the first quarter of 2018. That represents the worst first three months of a calendar year since 2009 which saw an 11% decline,” Mould said.
Not only is the index down more than since the crisis, it is also the worst-performing major market in the world so far in 2018, despite numerous major drops in Asian and US bourses.
“Over the same period this year, Japan’s Nikkei 225 index is down just over 7% and Hong Kong’s Hang Seng index is showing a small gain just below 1%,” Mould added.
The FTSE 100’s fall from grace has been driven by a variety of factors, but perhaps most notably by the global stock market correction which appears to be underway, driven by fears of rising inflation and a possible trade war between the USA and China.
This week alone, stocks have plunged after President Donald Trump announced that the US will impose new tariffs on imports from China. Stocks around the world, including in the UK, dropped sharply after the announcement, but have risen a little after Trump appeared to step back from those claims.
Brexit is also providing a major drag on the stock market, as UK companies and foreign firms with UK operations defer investment until they have a greater idea of exactly what the UK and EU’s relationship — particularly when it comes to free trade — will look like after Britain leaves the block.
Finally, the weaker dollar has played a major role in subduing the FTSE 100. This may seem counterintuitive at first glance, but relies on the fact that as much as 70% of all revenue in the index is dollar denominated. This means that when the dollar is strong against the pound, the FTSE 100 does well because companies are making more money. However, when the dollar falls against the pound, the FTSE 100 tends to struggle.
This phenomenon was evident in the 18 months after the referendum as a combination of unprecedented strength in the dollar, and a consistently falling pound, meant the FTSE 100 enjoyed a major boom. This has now reversed, with the dollar struggling, and sterling climbing back above $1.40 early in the year, something it had not done since before the referendum in June 2016.
The shift has helped subdue the FTSE and push it to its worst quarter in nearly a decade.
At the other end of the spectrum, “the biggest risers look set to be Russia’s Trading System index (up 7.3%) and Brazil’s Bovespa index which at the time of writing was up 11.4% so far this quarter,” Mould said.
Leave a Reply
Leave a Reply
This site uses Akismet to reduce spam. Learn how your comment data is processed.
