UK’s FTSE 100 Defies Brexit Blues to Charge into Bull Market

FTSE 100 Bull MarketThe FTSE 100 charged into bull market territory Monday and the pound spiked above $1.30 after Theresa May won the race to succeed David Cameron as Prime Minister.

A third day of gains helped push the UK’s FTSE 100 Index into bull-market territory.

After recovering from its post-Brexit plunge in just four days, the gauge of UK megacaps continued its rally, and is now up 21% from its February low. A dramatic plunge in the pound has made the gauge’s multinational companies more attractive since the country’s vote to leave the European Union. Analysts have joined investors and strategists in taking note, boosting profit-growth estimates for FTSE 100 members by about 4.5% in just over a week, the biggest such upgrade in more than a decade.

Since the Brexit vote, global stocks have been rattled by political turmoil in the UK. However, now traders are hopeful May will provide stability during Brexit negotiations, given her “less contentious relationship with the EU” than her former rivals.

“The big decline in sterling has been a very supportive factor for the valuation of the FTSE,” said Guy Foster, head of research at Brewin Dolphin in London. “The FTSE is not really a gauge of the UK economy but is much more a gauge of how much UK investors value overseas revenues. It’s still quite some distance from the highs we saw at the beginning of last year, and there is plenty of space to move into a few key resistance levels before we get there.”

HSBC Holdings Plc and Citigroup Inc. are among banks that raised their ratings on Britain’s biggest companies after the referendum, while JPMorgan Chase & Co. and Societe Generale SA said they’re still bullish. The Bank of England has pledged to shore up financial stability as business and consumer confidence plunge. The pound advanced today, reversing an earlier decline after news of Leadsom’s withdrawal. It fell to its lowest level since 1985 last week.

While the gauge of the largest UK companies is up 7.1% this year, the FTSE 250 Index of mid-cap firms, more dependent on the domestic economy, remains 4.2% lower. Real estate companies, insurers and banks are still down at least 8% since the day of the referendum.

The FTSE 100 is the first among its major European peers to enter a bull market. Germany’s DAX Index was heading for one back in April, but a global stock pullout as the Brexit vote approached halted its rally. It’s now just 12% above its February low, while France’s CAC 40 Index has risen 9.4%.

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Far from being a nice steady trend higher, investors have had to weather a rally of 17% through end-April followed by an 11% decline to Brexit day lows, before rebounding by an impressive 16% in just over two weeks.

This highlights the need for investors to have a properly constructed and managed portfolio, based on both their risk preference and expectation of return, to ensure they remain invested and avoid attempting to time the markets in the short-term.

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