(Bloomberg) -- A bad week for global equities is worse for the U.K.’s FTSE 100 Index.
A heavy weighting of commodity stocks -- among the worst-hit in the latest rout prompted by a string of disappointing economic data -- is dragging the British gauge to one of the worst performances among western European benchmarks. A strengthening pound is also unhelpful to the export-heavy gauge as currency traders position for a possible Brexit breakthrough.
While the FTSE 100 is up 0.1% as of 10:56 a.m. in London, it’s still down 4.7% for the week, poised for the worst decline since February last year. That compares with a 3.8% drop in the Euro Stoxx 50 Index.
“It’s been a tough week for equities everywhere,” said Lars Kreckel, global equity strategist at Legal & General Investment Management. “The FTSE 100 underperformed a bit over the past couple of weeks, but not much. From the macro side, the main culprit is the commodity weakness, which the FTSE 100 is more exposed to than other markets. Basic resources and oil and gas have been big underperformers.”
Materials and energy companies make up more than a fourth of the FTSE 100, while they have a weighting of about 15% on the Euro Stoxx 50.
The U.K. benchmark has lagged behind euro-area peers all year, with the cloud of Brexit uncertainty making investors reluctant to take strong positions, despite falling valuations. Strategists at Citigroup Inc. this week tipped U.K. stocks as their favored value trade, but the recommendation has found few takers. Pictet Asset Management’s Luca Paolini is also bullish on the U.K. on valuation grounds.
“Brexit has left U.K. equities as the cheapest of all the global stock markets, while sterling is also undervalued,” Paolini, chief strategist at Pictet, wrote in a note. “Any resolution to the country’s political turmoil is likely to see a big snap-back. We figure there’s the prospect of a 20% upside to the market.”
--With assistance from Ksenia Galouchko.
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