THE UK market felt the impact of Brexit last year as politicians scrambled to reach a deal on Britain’s fast approaching departure from the European Union.
With a vote on Theresa May’s heavily criticised deal not expected until mid-January, and as the government pumps billions into planning for a no-deal Brexit scenario, it seems unlikely that the gloom will lift this month.
The FTSE All Share declined 13 per cent over 2018 and the FTSE 100 ended the year down 12.5 per cent – its worst performance since the 2008 financial crisis – as political negotiations appear to have reached a stalemate.
“The UK stock market has definitely felt the heat of the Brexit burn in 2018, with domestically-focused UK companies finding themselves under pressure as politicians seem unable to agree on the UK’s withdrawal from the EU,” said Hargreaves Lansdown senior analyst, Laith Khallaf.
Brexit-sensitive housebuilders Taylor Wimpey and Barratt Developments were down 37 per cent and 33 per cent respectively for the year, according to Hargreaves Lansdown research.
“No-one knows whether Brexit will be good, bad or indifferent for the UK’s economy in the short or long-term but investors are fighting shy of UK assets thanks to the uncertainty,” Russ Mould, investment director at AJ Bell, told City A.M.
Doubts over the UK’s future relationship with the EU was not the only cause of the gloom, however, with the FTSE 100’s biggest faller British American Tobacco dropping 48 per cent in the year on regulatory pressures as the US cracked down on the sale of menthol cigarettes.
Despite the overall negative picture, some success stories have bucked the trend in 2018.
Shareholders in online supermarket Ocado have seen their investment almost double over the course of the year as its share price continued its bull run from the end of 2017.
The company has signed deals to license its technology to overseas grocers, including US giant Kroger. Pharmaceutical companies also fared well this year.
“Ocado really began to persuade investors that it was indeed really a software and technology player, rather than a marginally-profitable food delivery firm,” Mould said.
While the UK did particularly badly, the rest of Europe, Japan and emerging markets were sharply down on the beginning of 2018. The US has done slightly better but has seen a dramatic fall over the past three months.
The MSCI All Countries World Index is down eight per cent for the year as trade tensions between the US and China take their toll on global stock prices.
Mould said: “The pound’s weakness did not boost overseas earners, dollar plays and exporters to the degree that it had before, challenging the post-referendum trend of ‘sterling down, FTSE up.’
“This may reflect gathering concerns over global growth, thanks to Trump trade and tariffs on one hand and central bank policy in the other, as the US Federal Reserve continues to tighten interest rates, the European Central Bank stops adding to its Quantitative Easing scheme and even the Bank of England squeezes out one rate rise for the year.”
Khalaf added: “We’re unlikely to see the gloom lift in January. Brexit looks set to reach a parliamentary crescendo, and a swathe of trading updates from the UK high street isn’t likely to lighten the mood.”