State of UK stock market after the Brexit

Does the “British stocks are doing better than before Brexit” claim suck or not?

Nigel Farage has, during his recent retreatment speech, said something which seems to be main punchline of the Brexit “Leave” camp — that London Stock Exchange has recovered to levels higher than before the referendum, not only compensating post-Brexit vote losses caused by panic in the markets but also gaining more value than before Brexit. And that itself is true viewed only from the FTSE points, as much as it is at the same time a lie viewed through the value of the stocks.

How come?

Problem with that approach is that domestic currency for FTSE is British Pound sterling, alas GBP. The currency which fell and is still falling to 30-year low index value since the Brexit vote. All the companies listed in FTSE 100 have market caps (i. e. market values at given moment) presented in GBP. Lower GBP_I value means lower value for each point in stock prices of listed companies but also for the FTSE 100 index. We need an “value index” for the FTSE 100 index to see how much money is FTSE worth at any given moment, since market caps are not calculated in real-time for indexes, only for listed companies.

At the moment of writing this status, GBP_I is -32.1% down from the value exactly 30 years ago. And compared to pre-Brexit vote value, GBP is worth -22.2% less.

On the other hand, at this specific moment FTSE 100 6.551 points. Best effort to find lowest point after Brexit vote comes do 6.300 points. Best peak value so far, few days ago, was 6.590 points. Highest value on a day before Brexit vote was 6.365 points.

So, does it suck?

So, let’s take highest value pre-Brexit and highest value (so far to this moment) post-Brexit and what it means for capitalisation (i. e. worth in “real money”) of FTSE 100 LSE index.

  • Pre-Brexit FTSE 100 index multiplied by GBP_I value: 214.895,76
  • Post-Brexit FTSE 100 index multiplied by GBP_I value: 175.507,51

Hence, there is a gap of GBP value of FTSE of -39.388 such calculated “value points”, which means basically nothing as a number of itself. Point being here is that FTSE 100 converted to equivalent of its GBP value (real money) is still with all the stock market gains -19% less valuable than it was before Brexit vote. That is just a teeny-weeny better than -22.2% loss of the GBP currency.

So, London Stock Exchange didn’t make some big comeback (yet). This is still looking really bad for British economy in short, and if I have to guess, mid term future, despite Farage’s attempts to convince public otherwise while at the same time abandoning the ship.

Mandatory disclaimers:
There is a slight chance that economy doesn’t work straight-forward like this. There is also something called “FTSE 100 USD Index”, which i didn’t bother to check out. Also, my fictional index making some value of 175 thousand something from FTSE 100 is in no way proper calculation of the stock market index capitalisation — it is just an attempt of an economic laic to try and make sense of the current post-Brexit vote state of economical affairs. If there are economists out there who can tell me I’m stupid or maybe confirm my theory on FTSE 100 value — feel free to jump in. Discussion is always welcome!
Additional note: if I was asked, I would vote for “Remain”, but I’m not a British citizen so nobody asks me. Despite not agreeing with what Brits voted out, I am of a strong opinion that democratic procedure must be followed and I respect the choice on the referendum. This is not an attempt to disqualify “the other camp”, discussion is welcome.

Post scriptum: FTSE 100 traded in USD

Here is how FTSE 100 index looks traded in other currency than GBP (above mentioned FTSE-USD within “mandatory disclaimers” — sapienti sat: