Why Britain's mid-cap stocks crashed

The FTSE 100, Britain’s main index, has had a shaky few days. But the FTSE 250, Britain's index of mid-cap stocks, has really taken a battering.

Andrew Van Sickle
By Andrew Van Sickle
published

The FTSE 100, Britain's main index, has had a shaky few days. But the FTSE 250 index has really taken a battering, say Michael Hunter and Rochelle Toplensky in the FT. Last Friday and Monday it slid by a total of 14%, its worst two-day loss since the crash of 1987. The blue chips fell by around 5% over the same period. The trouble is that the FTSE 250 is a much better reflection of the UK economy than its bigger counterpart. It is largely made up of medium-sized manufacturers, service companies and retailers. The FTSE 100 is full of large multinationals, and is unusually skewed towards commodities firms.

The blue chips make 75% of their sales outside the UK, and the weakness of the pound helps those who earn their revenue in

a foreign currency; many report in dollars. "Barring any immediate trade restrictions they should benefit" from the sterling slide, says Karen Olney of UBS. But the FTSE 250 firms get 59% of their revenues from the UK, estimates JPMorgan.

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It hardly helps that fund managers have been trimming exposure to the FTSE 250 in any case: it has outperformed the 100 by 90% since the bull market began in March 2009. In the past few days, hedge funds have reportedly added to the selling spree by shorting-selling mid-caps borrowing shares and selling them, in the hope of buying back later at a lower price. Until the uncertainty over Britain's future relationship with Europe lifts, mid-caps seem likely to keep lagging the FTSE 100.

Andrew Van Sickle
Andrew Van Sickle

Andrew is the editor of MoneyWeek magazine. He grew up in Vienna and studied at the University of St Andrews, where he gained a first-class MA in geography & international relations.

After graduating he began to contribute to the foreign page of The Week and soon afterwards joined MoneyWeek at its inception in October 2000. He helped Merryn Somerset Webb establish it as Britain’s best-selling financial magazine, contributing to every section of the publication and specialising in macroeconomics and stockmarkets, before going part-time.

His freelance projects have included a 2009 relaunch of The Pharma Letter, where he covered corporate news and political developments in the German pharmaceuticals market for two years, and a multiyear stint as deputy editor of the Barclays account at Redwood, a marketing agency.

Andrew has been editing MoneyWeek since 2018, and continues to specialise in investment and news in German-speaking countries owing to his fluent command of the language.

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