BRITISH Land. British Telecom. British Airways.
British Sky Broadcasting.
Pretty solid British sounding names aren’t they?
They must earn their corn from the good old pound sterling, I’m sure.
But what if I told you that the average revenue derived from the UK for these particular institutions is under 80 per cent. This, when compared to the entire FTSE 100, is abnormally high. Brewin Dolphin estimates that only 28 per cent of the FTSE 100’s revenues are derived from its home country.
While in this modern day of globalisation it would be no shock to hear that some cash is earned overseas, it is the sheer magnitude of the UK stock market’s reliance on non-UK revenues which is quite eye-catching. Here are some of the ones which stick out for me.
Pharmaceutical company AstraZeneca, with its ICI part-ancestry, pulls in a mighty six per cent of its annual revenue from these shores, drawing its largest chunk from the Americas, with 50 per cent. Food producer Unilever claws in three per cent domestically, and clothing retailer Burberry pockets only seven per cent of revenues from the UK.
Knowing this should really impact your investment decisions. For instance, for a significant proportion of stock selections within the FTSE 100 index there may be little need to waste too much time briefing yourself on the state of the domestic economy. If our own economic conditions aren’t of any significance to miner Antofagasta, which generates a mighty 0.1 per cent of revenue here, then need you have much more than a general acquaintance with our economic state of health if you are to consider buying shares in the company?
Well, maybe the answer is not that one need neglect knowledge of domestic economic affairs; rather you need more than a fleeting knowledge of a multitude of international markets if you want to play the FTSE 100 to its true potential. The index truly is a gateway to the world.
Intriguingly for me as a keen observer, the potentially damaging blow of an unexpectedly negative UK GDP figure two weeks ago did nothing more than temporarily wobble the chin of the blue chips, before they proceeded to bounce back up to positive territory by day’s end. Granted, a factor could have been that sentiment has improved much since the darkest days of the credit crunch, such that investors are now amply girded against unfavourable, backward looking, economic data, but still, twitchy markets could have been expected to head south quick smart on that news.
But the important point is that when buying a significant chunk of the FTSE 100 you are not to any great degree playing the UK economy. Certainly, a horrific GDP reading would derail markets at every level, and have currency implications, but only down in the FTSE 250 and SmallCap are you more purely playing the UK economy.
The recent negative GDP shock was a UK one, not a US one, nor a Chinese one. It is not unfair to say that the UK market is a relative sheep to the shepherd markets and economies of the Far East or the US. It is also a very good way of playing them.
■ Nick Williams is an investment advisor in the Teesside office of Brewin Dolphin, and can be contacted on 0845-213-1340. All prices quoted in the article are from public sources. The views expressed are not necessarily held throughout the Brewin Dolphin Group. You should bear in mind that no investment is suitable for all circumstances and it is important to seek expert advice if in any doubt.
Brewin Dolphin Limited is a member of the London Stock Exchange, authorised and regulated by the Financial Services Authority.
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