December 12, 2018
Audrey Kaplan, Head of Global Equity Strategy
Peter Donisanu, Investment Strategy Analyst
A Losing Century—The Price of Brexit Uncertainty
Through December 6, 2018, the FTSE 100 Index has given back all of its price gains for this century
The Financial Times Stock Exchange Index (FTSE 100 Index) is the primary benchmark used to represent the performance of U.K. equities; it tracks the 100 most highly capitalized companies listed on the London Stock Exchange. The FTSE closed last Thursday at 6,704, which is 3.3% lower than its December 30, 1999, closing price of 6,930. In other words, the FTSE 100 Index has given back all of its price gains for this century. An index is unmanaged and not available for direct investment.
The 3.2% decline last Wednesday (December 5) represents the worst percentage drop in the FTSE 100 Index since June 24, 2016, the day after the Brexit referendum vote. Following this week’s postponement of a Brexit vote in Parliament, we expect continued uncertainty surrounding the U.K.’s exit from the European Union, creating heightened levels of market volatility into the New Year.
What it May Mean for Investors
We expect Brexit unknowns to contribute to higher levels of market gyrations in coming weeks. We believe this volatility is likely to be felt more in European risk assets than in the U.S.; as a result, we expect the U.S. dollar to maintain its strength versus the euro and pound in the near-term, an outlook that is reflected in our unfavorable view on international developed market bonds and neutral view on the region’s stocks.
Each asset class has its own risk and return characteristics. The level of risk associated with a particular investment or asset class generally correlates with the level of return the investment or asset class might achieve. Stock markets, especially foreign markets, are volatile. Stock values may fluctuate in response to general economic and market conditions, the prospects of individual companies, and industry sectors. Foreign investing has additional risks including those associated with currency fluctuation, political and economic instability, and different accounting standards. This may result in greater share price volatility. These risks are heightened in emerging markets. Investments in fixed-income securities are subject to market, interest rate, credit and other risks. Bond prices fluctuate inversely to changes in interest rates. Therefore, a general rise in interest rates can result in the decline in the bond’s price. Credit risk is the risk that an issuer will default on payments of interest and/or principal. This risk is heightened in lower rated bonds. If sold prior to maturity, fixed income securities are subject to market risk. All fixed income investments may be worth less than their original cost upon redemption or maturity.
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