How have financial markets fared during the PM’s first year?
While few thought navigating Brexit would be a piece of cake, few would have seen all the complexities involved, nor that the Prime Minister would have to do it with a minority government.
However, the impact has not been felt in financial markets. The FTSE 100 is 11.21% higher. Partly this has been driven by forces outside the UK. Among the strongest performers were the mining stocks, such as Antofagasta, which draws almost none of its revenues from the UK economy. The year’s top performer? Beleaguered security group G4S, where the share price was up 84% over a year ago.
The worst performer in the FTSE 100 was Pearson, who saw its share price drop 33%. Again, the problems had little to do with its UK business, and instead reflected a slump in its US education business.
Richard Stone, chief executive of The Share Centre, says that the market returns compare favourably: “To put the last twelve months in context, with base rates at 0.25% and inflation less than 3%, (the return from the FTSE All Share) represents a substantial real return. It compares favourably to the 14% return the market delivered in David Cameron’s first year as Prime Minister but lags well behind the 32% the market managed in Tony Blair’s first year.”
He adds: “With a rising, less volatile market, and government support for personal investors, there is arguably much for investors to cheer in the first year record of Theresa May as Prime Minister. However, the General Election has undoubtedly served to change this outlook substantially.”
The UK’s unpredictable political situation has undoubtedly been felt most in currency markets. After a slump in the wake of the Brexit vote, the pound has fallen a further 5.3% over the past 12 months against the euro, and 2.8% against the US dollar.
Equally, there are now signs that the UK economy is slowing. In July 2016, retail sales were riding high, up 5.6% on the previous year. The latest statistics from the Office for National Statistics (for May) show retail sales falling 1.2% year-on-year.
The UK economy was growing rapidly in the second quarter of 2016, rising 0.6% from the first quarter to the second quarter. In 2017, this is expected to slow to 0.3%, even after a disappointing reading in the first quarter.
There has also been a shift in investor perception. Stone says that investors are concerned about a potential market correction. A recent Share Centre survey found 79% of respondents believe the market will fall from its recent highs. He says: “These data points all highlight that the personal investor is feeling markedly less confident and wary of the future following the General Election outcome….A sense of perspective is also required. Indeed, given the performance of the market over the last year, a correction may still leave it ahead of where it was 12 months ago.”