I am grateful to my friends at 7IM for the chart below.
There’s been a lot of buzz around the FTSE 100 hitting new highs in the past few weeks.
This index, which contains the 100-largest constituents of the London Stock Exchange, has been boosted by optimism around interest rate cuts and an easing of geopolitical tensions.
This hasn’t gone unnoticed by UK papers. A group of London-listed companies doing well is something worth reporting, and “a win for the UK!”
But looking at the businesses that make up the index, it got us thinking: Is it really a win for the UK?
Accepting that headline performance is just a sum of its 100 parts, we took a look.
The likes of Shell and AstraZeneca have been the source of such growth recently and because they are so big, the wider index benefits.
But what is the revenue exposure that these companies have to the UK? Very little:
Source: Bloomberg/7IM
The fact that many companies operate with a more global outreach has removed much of the importance of their listing country. When companies think about growth, they’re less worried about the domestic economy and more interested in sector consolidation and industry-specific needs. It’s much less a matter of geography.
Look at London-listed mining company Anglo American last week, for example. ASX-listed (Australia) metals and mining company BHP made an £31bn offer to acquire Anglo American. Is it an investment in the UK? No. It’s more to do with some of AA’s major copper mines that BHP wants a piece of, based on how aggressively this metal is in demand for the production of renewable technology.
Whilst a map offers familiarity and comfort, if we had to set our investment compass, we’d be more inclined to measure where we are by sectors and factors rather than borders.
I hope you found the above interesting and, as always, if you have any questions about this piece or any other finance-related matter, please do not hesitate to contact me.
Yours sincerely,
Graham Ponting CFP Chartered MCSI
Managing Partner
