One fact that complicates my previous argument about Britain’s fortunes, post-Brexit, is the comparative underperformance of the FTSE 250, which tracks mid-cap companies. Such mid-caps are typically less globally oriented, compared to the larger companies in the FTSE 100. As the WSJ reports this morning, the FTSE 250 has dropped 12% since the Brexit vote, compared to the 2% drop in the FTSE 100.
Nevertheless, the FTSE 250 is still outperforming European stocks for the year. Here is the FTSE 100 (in yellow) compared to the Euro Stoxx 600 (light blue) and the FTSE 250 (dark blue):
Why have stocks in the FTSE 250 done particularly badly, even if they’ve appeared to stabilize today (up 3.78%)? The chief reason may be the heavy representation of financials–banks and real estate investment trusts. Nearly 33% of the FTSE 250 is made up of financial companies:
The FTSE 100, by comparison, is comprised of just 17% financials. Financials have been hardest hit by Brexit because they are most dependent upon the regulatory regime that has created the EU common market, and that has allowed Britain to serve as a hub for providing financial services to the rest of the EU.