In a week when Pound Sterling touched a 30-year low and by Friday close had fallen by almost 1.5 percent to $1.2434, stock investments provided the only positive notes in a dismal week for the UK's economy. More precisely, the UK stocks have to be divided in two different camps of winners and losers. On the whole, the FTSE 100 index climbed close to a record high on Tuesday, and shares also gained on Friday as stocks recovered from the flash crash. The winners were mainly companies that get a share of their revenues from outside Britain who rallied, carrying the rest of the market and covering for the losses of the losers. Companies operating in some market sectors did better than others: the FTSE 350 Industrial Metals & Mining Index, for example, had its best weekly performance since spring.
Among the winners was HSBC Holdings Plc, which, having the largest weighting among the FTSE 100 stocks, was partly responsible for the overall rise in the index. The bank soared to its highest price since June 2015: given the dimensions of HSBC's international operation and the proportion of its total revenue they represent, it is clear the bank is benefiting enormously from this year's sterling's brexit-induced weakness. Interestingly, in the first two quarters, the company had announced a 29% collapse in profits, due to, in their words, a "turbulent period" in the world economy, and the bank's leadership had to offer shareholders a share buyback of $2.5bn to obtain their continuous backing. As a consequence of those results,HSBC's earnings per share have been declining by a rate of 12% this year; in the last few months, shares in HSBC have actually risen in excess of 40%. Last year, reported net profit was up from $18.7 bn in 2014 to $18.9 in 2015, a meagre increase of 1%, while reported revenue actually was down 2%, from 61.2 to 59.8. The bank also reported losses using its own adjusted profit figures, by over 2% to $20.4bn.
HSBC Holdings Plc, which is Europe’s largest bank, also said the pound’s slide is far from finished and predicts a slide to $1.10 by the end of 2017. It has to be seen whether the pound's weakness will continue to be beneficial to them as it is now.
Among the losers, Sports Direct International Plc left 11 percent on the ground after scrapping its forecasts, explaining that it was due to Sterling's “extreme movements”, while stocks in EasyJet Plc, which reports its revenue in sterling, fell to its lowest level since 2013, given the inflationary effect of the currency slide on the airline's cost.
Lloyds has also had a bad week: the British government has announced it has abandoned the plan of offering shares in the part-nationalised bank to retail investors. Instead, it will resume selling shares in the bank at below its average bailout price. Investment bank Morgan Stanley was instructed to dispose of its 9.1 percent stake over the next year. Morgan Stanley will be able to sell up to 15 percent of the Lloyds stock held by the government. UKFI, the treasury branch which deals with stock market operations, said that Morgan Stanley will not be able to sell below a “fair value” price, which is however below the price the treasury paid for the Lloyds shares (73.6 pence average price which the government paid in its 20 billion-pound ($25 billion) bailout at the height of the financial crisis). Philip Hammond, the Chancellor of the Exchequer, commented that, due to the increased market volatility, the time wasn’t right for a retail offer.