Abu Dhabi: Stocks in the UK continued to nosedive on Monday in the second trade session after the UK voted to leave the European Union, a vote that ushers plenty of uncertainty both on the political and economic fronts.
As panic continued to grip investors, the FTSE 100 index ended around 2.5 per cent down, while the FTSE 250 index, which is heavier with local companies compared to the multinational FTSE 100, slid 6.66 per cent.
With investors scrambling to sell equity shares on the London Stock Exchange, the volatility led to a temporary suspension in trading in certain stocks including those of Royal Bank of Scotland (RBS) and Barclays.
RBS’s share prices fell as much as nearly 26 per cent, as Barclays tanked around 21.3 per cent shortly after noon (London time), and share prices of Lloyd’s Banking Group plunged over 10 per cent.
The plunge comes after reports over the weekend showed that the banking sector could be among those hit the most by the Brexit, with news surfacing about a potential ‘exodus’ of bankers from London. Other news also said HSBC could relocate as many as 1,000 employees from London to Paris if the UK left the single market.
But it wasn’t just banks whose shares sank on Monday, with British Airways’ parent company, IAG, down 13.84 per cent only an hour before the LSE closed.
Meanwhile, EasyJet’s share prices plunged 18.9 per cent as the company issued a statement saying it expected lower revenues as a result of the Brexit.
“Following the outcome of the EU Referendum, we also anticipate that additional economic and consumer uncertainty is likely this summer, and as a consequence, it is expected that revenue per seat at constant currency in the second half will now be down by at least a mid-single digit percentage compared to the second half of 2015,” it said in a statement to the LSE.
EasyJet also said that it expected to add around £25 million of additional costs in the year because of recent changes in fuel prices and exchange rates. Factors like strikes by French air traffic controllers, runway issues at Gatwick Airport, the crash of an EgyptAir flight, and severe weather have also led to lower demand and cancellations by passengers.
In the currency markets, the sterling extended its losses, falling to a low of $1.3152. This is even after it fell to 31-year lows on Friday following the Brexit vote.
“I think people who think we’ve seen the worst of the Brexit effect on equities, currencies, and commodities are being naïve. I think the repercussions of the Brexit vote on the financial sector in particular is much bigger than people expect and it will take some time.
What will also exaggerate these drops is the fall in the currency. We’re talking of maybe another 10 per cent going down, and there’s no way a currency can go this low without [leading to] a balancing of portfolios and exacerbating the selling pressure,” said Mohammad Yasin, managing director of the National Bank of Abu Dhabi’s Securities.
The resignation of UK Prime Minister David Cameron on Friday only added to the uncertainty regarding the direction that the UK is taking, and led to even more volatility in markets.
“What worries me is the strong volatile movement on the short term. Longer term, the market will find its bottom and you’re going to get buyers and sellers when there is attractive valuation.
The UK companies like Shell and BP are good companies with a strong business model… so for businesses that are UK-based, they will see less of an effect than those that rely on outside markets and they will see an inflow of buying activity soon,” NBAD’s Yasin said.
UK-based blue chips could, thus, push the FTSE 100 up eventually as bargain-hunters start coming into the market.
