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The Accumulator: Boris' Brexit backing boost
The pound tumbled this week as 'Brexit' fears took hold following Boris Johnson's intervention, amplifying returns from overseas markets.
by Sam Antrobus on Feb 26, 2016 at 17:18
Investors counting their impressive returns from overseas stock markets this week have one man to thanks above others: Boris Johnson.
The London mayor’s backing of the ‘out’ campaign, just a day after prime minister David Cameron had announced the UK’s referendum on EU membership would take place on 23 June, galvanised those calling for a ‘Brexit’ and sparked a tumble in sterling.
The pound this week tumbled to a seven-year low against the dollar, while another landmark could be around the corner. Sterling has not fallen below $1.36 for 30 years, but at $1.386 is not far off.
As exclusive Accumulator data table shows, the three major global currencies featured all made substantial gains against the pound over the five days to yesterday. The yen rose 3.8%, the dollar was up 3% and the euro gained 2.4%.
While global markets have continued to recover from the worst of the sell-off that greeted the start of the year, sterling’s slide has helped to amplify those returns.
A 1.8% rise for the S&P 500 in dollar terms turned into a 4.9% boost in sterling and means that in pound terms, the US is now up over the year to date, joining Brazil and Russia, which have both enjoyed the bounce in the oil price, with crude 2.6% higher over the week.
The resurgence in oil and commodities more broadly has meanwhile hurt stock markets in oil-importing India and China. Globally, markets have made up much of the ground lost at the start of the year, with the FTSE World now just 0.8% down over 2016.
The pound’s plummet has even managed to turn losses for domestic investors in Europe and Japan into gains for those holding the same stocks in the UK. The MSCI Europe ex-UK index, the German DAX 30 and the Japanese Topix were both down in euro and yen terms over the week to yesterday, but sterling investors have enjoyed a positive return.
But Brexit fears have largely been confined to the currency markets, with the FTSE 100, although not matching the gains of overseas markets, still notching up a positive return for the week.
Gilts too, have resisted a slide into the red, as have UK corporate bonds, although sterling’s slide meant they could not match the jump in bonds from the US and Europe.
One sector that has suffered, however, is property, with UK real estate investment trusts (Reits) down 2.9% over the week. Reits have already been in the doldrums so far this year as oil’s slide has raised fears sovereign wealth funds won’t be snapping up properties at quite the same rate.
The prospect of a UK exit from the EU has further shaken investors, with pricey London property rated as particularly vulnerable in the event of a Brexit.
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