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In the two years since the EU referendum, the disparity between the share performances of companies that operate largely inside the UK and ones that repatriate profits from foreign subsidiaries has almost reached a record high, said the accountancy company KPMG.
The trend has left the UK stock market lagging behind US and continental markets, which have soared in the past two years. Investors have pushed the FTSE 100 to a record high but the index is still only a few hundred points above its 1999 peak, while the Dow Jones is at 24,580 – more than double the level at the turn of the century.
KPMG’s latest FTSE Brexit insight analysis, which tracks companies from the FTSE 250 and FTSE 100, found investors favoured businesses that benefited from the weakness of the pound, which is down 11% against a basket of currencies since the Brexit vote.
KPMG said it put companies that earn more than 70% of their revenues from abroad in a non-UK 50 index and compared it with 50 businesses that derive more than 70% of their revenues from the UK.
Yael Selfin, the KPMG chief economist, said the UK 50 is 4% below its level prior to the referendum, while the non-UK 50 has gained 35% over the same period.
“The outlook for the next year may be more mixed. While the pound is expected to remain relatively weak, the prospect of an escalating trade war could hurt a significant proportion of our FTSE non-UK 50 constituents,” she said.
“These companies are also potentially more vulnerable to a cliff-edge Brexit as they tend to have supply chains that are more deeply integrated with the EU.” [...]