U.K. Midcap Stocks Post Biggest 2-Day Drop Since 1987 on Brexit

Are Markets Overreacting to Brexit?
  • FTSE 250 drop shows domestic companies getting hit most
  • Airlines, homebuilders and lender shares lead declines

Stocks in Britain deepened declines, with midcaps suffering the biggest blow, after Friday’s shock vote to leave the European Union continued to cast a pall on the economic and political outlook.

The FTSE 250 Index of smaller, more domestic companies tumbled 7 percent at the close, taking its two-day decline to 14 percent. That’s the biggest plunge since 1987. The bigger benchmark FTSE 100 Index fell 2.6 percent, with its losses tempered by gains in utilities and gold miners.

EasyJet Plc plummeted 22 percent after warning that a drop in travel demand and a weaker pound after the Brexit vote will hurt earnings in the summer. IAG SA slid 16 percent. Gauges of lenders and real-estate firms joined in with declines of more than 7 percent. Royal Bank of Scotland Group Plc and Barclays Plc tumbled at least 15 percent. Gains in gold miners and utilities tempered the declines.

Stocks reflected little sign of investor confidence after Chancellor of the Exchequer George Osborne said a contingency plan is in place to shore up the U.K. economy and David Cameron rejected calls for a do-over vote. The FTSE 100 slid 3.2 percent on Friday, paring a plunge of as much as 8.7 percent after a weaker sterling boosted exporters.

“It’s becoming clear that this is not going to be resolved any time soon,” said Tim Rees, director of U.K. equities at Insight Investment Management in London. His firm oversees about 400 billion pounds ($537 billion). “The FTSE 100 usually has the ability to bounce back, but the rest are more exposed to these uncertainties hanging around. Housing stocks are going to find life a bit tough as people aren’t sure whether they want to commit to that kind of expenditure.”

The weekend failed to bring answers to investors looking for signs of a plan going forward, setting markets up for months of uncertainty. The mechanics and terms of the U.K.’s exit are yet to be determined, and the nation’s political leadership during the negotiations is unclear after Prime Minister David Cameron announced his resignation. The opposition Labour Party has been thrown into chaos, Scotland is agitating for independence and in Belfast, Irish republicans Sinn Fein called for a referendum on reunification with Northern Ireland. The pound tumbled to a fresh 31-year low.

U.K. homebuilders extended declines after their worst drop ever on Friday amid concerns that demand for buying will slow in the aftermath of the vote. A gauge tracking real-estate shares capped its biggest two-day drop ever, down 23 percent.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE