Britain’s FTSE 100 Defies Brexit Blues to Enter Bull Territory

Will Markets Settle Down If May Becomes U.K. PM?

A third day of gains helped push the U.K.’s FTSE 100 Index into bull-market territory.

After recovering from its post-Brexit plunge in just four days, the gauge of U.K. megacaps continued its rally, and is now up 21 percent from its February low. A dramatic plunge in the pound has made the gauge’s multinational companies more attractive since the country’s vote to leave the European Union. Analysts have joined investors and strategists in taking note, boosting profit-growth estimates for FTSE 100 members by about 4.5 percent in just over a week, the biggest such upgrade in more than a decade.

The FTSE 100 extended gains after Andrea Leadsom withdrew her candidacy, paving the way for Home Secretary Theresa May, who is set to succeed David Cameron as prime minister on Wednesday. The gauge rose 1.4 percent to an 11-month high at the close, boosted by a rebound in homebuilders and rising commodity producers. Taylor Wimpey Plc and Barratt Developments Plc climbed more than 7 percent, while Glencore Plc and Anglo American Plc rallied at least 6 percent.

“The big decline in sterling has been a very supportive factor for the valuation of the FTSE,” said Guy Foster, head of research at Brewin Dolphin in London. “The FTSE is not really a gauge of the U.K. economy but is much more a gauge of how much U.K. investors value overseas revenues. It’s still quite some distance from the highs we saw at the beginning of last year, and there is plenty of space to move into a few key resistance levels before we get there.”

HSBC Holdings Plc and Citigroup Inc. are among banks that raised their ratings on Britain’s biggest companies after the referendum, while JPMorgan Chase & Co. and Societe Generale SA said they’re still bullish. The Bank of England has pledged to shore up financial stability as business and consumer confidence plunge. The pound advanced today, reversing an earlier decline after news of Leadsom’s withdrawal. It fell to its lowest level since 1985 last week.

While the gauge of the largest U.K. companies is up 7.1 percent this year, the FTSE 250 Index of mid-cap firms, more dependent on the domestic economy, remains 4.2 percent lower. Real estate companies, insurers and banks are still down at least 8 percent since the day of the referendum.

The FTSE 100 is the first among its major European peers to enter a bull market. Germany’s DAX Index was heading for one back in April, but a global stock pullout as the Brexit vote approached halted its rally. It’s now just 12 percent above its February low, while France’s CAC 40 Index has risen 9.4 percent.

While the FTSE 100 is the the third-best performer among developed markets this year in local currency, looking at it in dollar terms reveals a different picture: it’s down 7.6 percent since June 23, a bigger drop than the regional Stoxx Europe 600 Index. That implies a significant loss for foreign investors, who own more than half of the nation’s shares, according to the latest available data from the Office for National Statistics.

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