Britain's top share index rose to its highest level in nearly a year on Friday and posted its third straight weekly gain as investors continue to pile into shares of large dividend-paying UK bluechip exporters. The bluechip FTSE 100 equity index ended the day up 0.9 percent at 6550.30, recovering from both the referendum selloff as well as last summer's swoon across global markets.
A healthy US jobs report on Friday helped lift European and UK indexes into the close. The FTSE 100, which is dominated by international companies that do much of their business outside the UK, has recovered from a 6-percent drop after the June 23 vote to quit the bloc. In US dollar terms, however, the FTSE 100 is still well below its pre-referendum levels and is down 7 percent this year. The Brexit result has sent sterling to a 31-year low against the dollar, yet that has benefited FTSE 100 companies, as a weaker pound can help exporters while firms get an accounting boost from revenues earned in US dollars.
"The economic fundamentals look weak, given the result of the EU vote, but the international exposure of the FTSE 100 has meant it has been pretty resilient," said Central Markets' trading analyst Joseph Neighbour. Worries over Brexit hit FTSE 100 property and housebuilding stocks earlier this week, with leading fund managers including Legal & General and Aberdeen Asset Management cutting the value of UK property funds. However, housebuilding stocks recovered on Friday, with analysts at UBS saying the recent drop in the sector could mark an attractive entry point for investors.
Housebuilder Taylor Wimpey rose 7.9 percent and rival Persimmon advanced 5.6 percent. Gary Paulin, head of global equities at Northern Trust Capital Markets, also backed buying UK housebuilding stocks, tipping Persimmon among others. Brexit has had more of an impact on the mid-cap FTSE 250 index which has more domestically focused companies exposed to any downturn in the British economy. The slump in sterling has also meant the FTSE 100 is worth around 10 percent less than it was before the Brexit vote in terms of its US dollar value.
Market research company GfK said Brexit had prompted the biggest drop in UK consumer morale in five years. Uncertainty about Britain's future trade agreements with Europe could also stifle foreign investment into the UK and curb job creation, economists say.