UK Stocks Outperform Despite Chaotic Stretch for Britain

UK’s Main Index Has Climbed 8% Since December

The UK stock market has been rallying since the start of December, as Brexit- and COVID-wary international investors return to British stocks. The United Kingdom has been among the nations most impacted by the coronavirus pandemic over the past year. The country has also been embroiled in negotiations around how to exit the European Union.

Despite these challenges, the FTSE 100, the UK benchmark, has seen 8% growth since the start of December. It is outperforming the S&P 500, the MSCI World, and the Euro Stoxx indices.

Brexit Continues to Impact UK Markets

The latest rally in British stocks is an encouraging sign for the UK economy, but it does not completely correct for the market’s underperformance since the Brexit referendum passed. The FTSE 100 remains lower in dollar terms than where it closed on June 23, 2016, the day the UK voted to distance itself from the EU.

On Christmas Eve, UK and EU officials closed a trade deal after tense negotiations. This deal has soothed fears that Britain might face steep tariffs and restrictions after the separation, but much still needs to be negotiated to keep the country’s economy intact.

Questions About the British Pound

Some analysts say the British pound has been trading under its fair value since the Brexit referendum passed, as many are worried about the chaos and cost that could result from the split with Europe. Hopeful economists expect that international traders will continue to put more money into UK assets. To do this, they will need British currency, which will strengthen the British pound.

But others are concerned about the future of the pound. Though the new trade deal has alleviated some fears, it does not make clear how exports to Europe will be handled in the long term. The UK and Europe have only just started negotiating how its largest export, services, will be handled after Brexit. Investors will be eagerly watching to see how these negotiations unfold in the coming months.

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