It rains in London. It has rained a lot five years after the British, on June 24, 2016, went to the polls to decide that their relationship with the European Union had ended and that they preferred to continue alone, in addition to bilateral agreements with the rest of the economies worldwide.
The market expected and desired a different result to the one that finally occurred and hence the collapse that the European stock markets suffered that Friday.
Especially accused was the one that suffered the Ibex 35 itself as it was one of the trading floors most dependent on trade and mobility flows with the British Isles. In fact, the United Kingdom is the third most important country for the income of the national indicator, where they receive 6.9% of the total , only behind the United States and Spain itself, according to data collected by FactSet.
The national benchmark fell that day by 12% , being until then the most bearish session in the history of the index, even ahead of the bankruptcy of Lehman Brothers in 2008 when it lost 9%. Until March 12 of last year arrived and the panic over the pandemic overcame it, with a goring of more than 14%.
“One thing is the stock market reaction and another is the real impact on the economy,” says Ignacio Cantos, from Atl Capital. “Stock markets react downward to unexpected events, and this was very unexpected, as was also the case with Trump’s victory that same year. It generated uncertainty and that is why it traded like that,” he adds.
Since then, the Ibex has suffered many ups and downs, especially as a result of Covid-19, and is 3.8% above the levels prior to the referendum, so it can be concluded that the effect of the break with the United Kingdom has been muffled.
However, there are five index values that are trading below that date (although they have recovered those previous prices at some point during the last five years). They are Banco Sabadell, Telefónica, IAG, Meliá and Indra.
The Catalan bank has been hit the hardest by investors since then. The endemic problems in the financial sector in recent years (zero-rate environment and low yields) have been compounded by Sabadell’s greater exposure to the British market and to the pound through its subsidiary TSB. In fact, 18% of their income comes from the islands . Although their stocks have returned to pre-Brexit levels at some point in these five years, their value has fallen by half since then.
The next most penalized company in the Spanish market has been Telefónica, with 38%. Like Sabadell, through O2 it has had exposure to the British market of around 15% of its income .
Meliá and IAG have also lost more than 30% since then, although their decreases have also been strongly justified by Covid. However, the depreciation of the pound played, a priori, against the purchasing power of the British in Spain. “However, in 2019 Spain set a record number of tourists,” recalls Cantos.
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Lastly, Indra. The technology company, despite having only 2.5% of its business in the British Isles, has lost more than 20% in the last five years. However, this decline is more attributable to Covid, since in February of last year it was trading above pre-Brexit prices.
From Vontobel, Ludovic Colin believes that · a discount is being paid for the United Kingdom. The pound is undervalued, so is the FTSE, as are some credit spreads, relative to their counterparts in Europe.
Probably this discount is not large enough to pay for long-term risks, but I do believe that there is still a short-term opportunity in its stock market, “he concludes. In this sense, the British currency accumulates a depreciation of almost 11% against the euro since the day before the vote Beyond this, in London it continues to rain.
