The government’s £330bn support package to help businesses through the Covid-19 outbreak has failed to boost the FTSE 100 as it stands among the worst-performing of the mainstream global indices owing to its high exposure to cyclical sectors.
Since 20 February the FTSE 100 has sunk 28.3% while the Stoxx Europe 600 has shed 26% and the S&P 500 has lost 19.5%, according to FE Fundinfo data. The Topix is down 15.2% over the period and the MSCI Asia has fared slightly better only losing 14.8%.
Square Mile investment director Jason Broomer noted in previous downturns the FTSE has not dipped as much as other indices because the UK is typically a low beta market, unlike Japan, Europe and the US.
But the FTSE 100’s losses in recent weeks have been down to the index’s high exposure to the sectors worst hit by coronavirus, including energy, oil, mining, UK banks and airlines.
Last week, Portfolio Adviser highlighted investors backing Britain’s biggest airline and travel companies like Mark Barnett and Henry Dixon, are nursing heavy losses from the coronavirus pandemic as more countries implement harsher travel restrictions to delay the spread of the virus.
FTSE has little exposure to digital economy
Furthermore, the UK market doesn’t have a high exposure to technology, a sector expected to benefit from the coronavirus outbreak as people are forced to digitalise their lives.
Broomer said: “One clear winner from this experience is that people will increasingly move to digitalise their lives, whether it’s working from home or online shopping – 15% of retail sales last year were online. That’s been a trend and the expectation is that trend will accelerate but the biggest technology businesses out there, that’s in the US not in the UK.
“This goes some way to explain why the UK stock market has been hit.”
Fairview Investing consultant Gavin Haynes said sectors like energy and financials don’t feature heavily in the Japanese benchmark which is also more exposed to technology stocks as well as consumer discretionary names.
In Asia more widely large Chinese tech companies appear in the index which, again, Haynes said stand to benefit from the changing customer habits including increased online activity.
Government support is critical
It comes as chancellor Rishi Sunak unveiled a package of measures to help UK companies deal with the blow from the coronavirus outbreak. The government is making £330bn of loans available to businesses and is mulling a potential support package specifically for airlines and airports.
The intervention comes after prime minister Boris Johnson urged the population to avoid unnecessary social contact by working from home and avoiding pubs and restaurants.
The measures are expected to focus initially on airlines and travel companies as well as the hospitality and leisure sectors.
