Markets
Chart: The Aftermath of the Brexit Vote
The Aftermath of the Brexit Vote
It’s been 3 months, and no signs of doom or gloom.
The Chart of the Week is a weekly Visual Capitalist feature on Fridays.
For the first half of the year, we were warned early and often by authorities that the Brexit vote could be a calamity for the ages.
For example, the IMF claimed that a “Leave” result would threaten to “cause severe damage”, while Standard and Poor’s said that it would “paralyze” investment in the UK.
But, it turns out that the real Brexit casualty isn’t the UK economy – instead it is the reputation of the many professional economists who wrongly predicted doom and gloom as the likely aftermath.
The Story So Far
Today’s chart looks at the three months before and after the Brexit vote, which took place on June 23, 2016.
The two charts tracked are the GBP/EUR and the FTSE 100. The former is the price of the British pound in terms of euros, and the latter is a major stock index that includes the largest companies listed in London, such as Barclays, Glencore, HSBC, Royal Dutch Shell, or Sainsbury’s.
As expected, both markets have seen some action in the aftermath of the vote to leave. The pound has depreciated in terms of euros, but it is still higher now than it was from 2009-2011 in the post-crisis period. Against the ultra-strong USD, the pound is at decade-lows – but many other currencies are in similar territory as well.
The FTSE 100 is another story. It’s relatively close to all-time highs – and even despite the fears of a potential collapse of Deutsche Bank, it’s climbed over 12% since the initial Brexit slump.
In both cases, the action was partly underscored by the Bank of England, which announced a new stimulus program (QE) after its August meeting, while cutting rates from 0.5% to 0.25%.
Other Indicators
While there’s been movement in the currency and equity markets, other economic indicators have been status quo or better for the UK so far.
Retail sales beat in July and August, and unemployment remains at 11-year lows. Purchasing manager indices dropped temporarily, but jumped back up.
The economists that predicted that the sky was falling? They’ve been forced to revise growth expectations back up, at least on a short-term basis. It’s been dubbed the “Brexit Bounce” by The Spectator, a conservative magazine based in London.
While there is likely still going to be some long-term fallout from the Brexit decision, many “experts” blew it on this one.
Markets
The European Stock Market: Attractive Valuations Offer Opportunities
On average, the European stock market has valuations that are nearly 50% lower than U.S. valuations. But how can you access the market?
European Stock Market: Attractive Valuations Offer Opportunities
Europe is known for some established brands, from L’Oréal to Louis Vuitton. However, the European stock market offers additional opportunities that may be lesser known.
The above infographic, sponsored by STOXX, outlines why investors may want to consider European stocks.
Attractive Valuations
Compared to most North American and Asian markets, European stocks offer lower or comparable valuations.
| Index | Price-to-Earnings Ratio | Price-to-Book Ratio |
|---|---|---|
| EURO STOXX 50 | 14.9 | 2.2 |
| STOXX Europe 600 | 14.4 | 2 |
| U.S. | 25.9 | 4.7 |
| Canada | 16.1 | 1.8 |
| Japan | 15.4 | 1.6 |
| Asia Pacific ex. China | 17.1 | 1.8 |
Data as of February 29, 2024. See graphic for full index names. Ratios based on trailing 12 month financials. The price to earnings ratio excludes companies with negative earnings.
On average, European valuations are nearly 50% lower than U.S. valuations, potentially offering an affordable entry point for investors.
Research also shows that lower price ratios have historically led to higher long-term returns.
Market Movements Not Closely Connected
Over the last decade, the European stock market had low-to-moderate correlation with North American and Asian equities.
The below chart shows correlations from February 2014 to February 2024. A value closer to zero indicates low correlation, while a value of one would indicate that two regions are moving in perfect unison.
| EURO STOXX 50 | STOXX EUROPE 600 | U.S. | Canada | Japan | Asia Pacific ex. China |
|
|---|---|---|---|---|---|---|
| EURO STOXX 50 | 1.00 | 0.97 | 0.55 | 0.67 | 0.24 | 0.43 |
| STOXX EUROPE 600 | 1.00 | 0.56 | 0.71 | 0.28 | 0.48 | |
| U.S. | 1.00 | 0.73 | 0.12 | 0.25 | ||
| Canada | 1.00 | 0.22 | 0.40 | |||
| Japan | 1.00 | 0.88 | ||||
| Asia Pacific ex. China | 1.00 |
Data is based on daily USD returns.
European equities had relatively independent market movements from North American and Asian markets. One contributing factor could be the differing sector weights in each market. For instance, technology makes up a quarter of the U.S. market, but health care and industrials dominate the broader European market.
Ultimately, European equities can enhance portfolio diversification and have the potential to mitigate risk for investors.
Tracking the Market
For investors interested in European equities, STOXX offers a variety of flagship indices:
| Index | Description | Market Cap |
|---|---|---|
| STOXX Europe 600 | Pan-regional, broad market | €10.5T |
| STOXX Developed Europe | Pan-regional, broad-market | €9.9T |
| STOXX Europe 600 ESG-X | Pan-regional, broad market, sustainability focus | €9.7T |
| STOXX Europe 50 | Pan-regional, blue-chip | €5.1T |
| EURO STOXX 50 | Eurozone, blue-chip | €3.5T |
Data is as of February 29, 2024. Market cap is free float, which represents the shares that are readily available for public trading on stock exchanges.
The EURO STOXX 50 tracks the Eurozone’s biggest and most traded companies. It also underlies one of the world’s largest ranges of ETFs and mutual funds. As of November 2023, there were €27.3 billion in ETFs and €23.5B in mutual fund assets under management tracking the index.
“For the past 25 years, the EURO STOXX 50 has served as an accurate, reliable and tradable representation of the Eurozone equity market.”
— Axel Lomholt, General Manager at STOXX
Partnering with STOXX to Track the European Stock Market
Are you interested in European equities? STOXX can be a valuable partner:
- Comprehensive, liquid and investable ecosystem
- European heritage, global reach
- Highly sophisticated customization capabilities
- Open architecture approach to using data
- Close partnerships with clients
- Part of ISS STOXX and Deutsche Börse Group
With a full suite of indices, STOXX can help you benchmark against the European stock market.
Learn how STOXX’s European indices offer liquid and effective market access.
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