Despite initial misgivings of a potential Brexit fallout, the United Kingdom’s economy, along with country-specific exchange traded funds, have performed better than many expected.
Since the June 27 low, the FTSE 100 Index has increased 16.8%.
While the British pound has plunged to 18.2% to $1.2171 since the Brexit vote passed and dragged on the non-iShares MSCI United Kingdom ETF (NYSEArca: EWU), currency-hedged U.K. ETFs that provided a purer play on the underlying market have more or less followed the U.K. market’s recent strength.
For instance, since the June 27 low, the iShares Currency Hedged MSCI United Kingdom ETF (NYSEArca: HEWU) gained 18.5%, WisdomTree United Kingdom Hedged Equity Fund (NasdaqGM: DXPS) rose 15.0% and Deutsche X-Trackers MSCI United Kingdom Hedged Equity ETF (NYSEArca: DBUK) increased 15.0%.
So far, doubts over the whether or not the Brexit vote would cast the economy into a recession and deter foreign investment have been mollified.
The Office for National Statistics revealed that U.K.’s economy expanded by 0.5% in the third quarter, compared to expectations of 0.3% growth, with “little evidence of a pronounced effect” from the referendum, Bloomberg reports. This marked the 15th quarter of growth and sets the economy on pace to outperform the broader euro-area this year.
[related_stories]Nissan, the U.K.’s biggest carmaker, also said it will increase investment in its north east England plant and add 7,000 autoworkers, diminishing fears that the Brexit vote would drive away foreign investors.
“In the short term this is a relief for the euro skeptic and hard-core pro-Brexit camp,” Carsten Nickel, deputy director of research at Teneo Intelligence in Brussels, told Bloomberg. That “could pose additional risks, in my view, for the medium- to longer-term because the more emboldened this constituency feels, the more dangerous this gets for the outlook.”
However, there are still questions over how leaders can amicable separate the U.K. from the European Union without a large fallout.
“This is a really long, drawn-out process and we’ve just seen the early start of it,” former Bank of England policy maker Danny Blanchflower told Bloomberg. “The suspicion is there’ll be more slowing to come – we’re in a fairly benign world with perhaps a tsunami coming.”
For more information on the U.K., visit our United Kingdom category.
iShares Currency Hedged MSCI United Kingdom ETF (NYSEArca: EWU)