Global indices winners and losers

Two weeks after the UK’s Brexit vote, market focus is increasingly focused on Italy and the woes in its banking sector. The FTSE MIB index is now among the most under-valued stock indices in the world, but Hungary’s BUX and the NASDAQ are the indices to watch.

Data charts
Source: Bloomberg

As we finish up the second week of post-Brexit trade, global market concerns are increasingly focused on Italy and the non-performing loan time bomb sitting under its banking sector. The Italy FTSE MIB index has lost 4.7% over the past week, and is now one of the most under-valued indices in the world on a range of metrics.

Hungary, as a European country that doesn’t use the euro, has seen its equity index benefit from the Brexit sell-off in a similar way to the FTSE 100. The Hungarian forint is still down 3.3% from its pre-Brexit level and continues to trade at lows not seen since the depths of the February sell-off. At least half of the companies on Hungary’s BUX index stand to benefit from the weaker currency. In contrast, most of the eurozone members continue to see some of the worst equity performances globally.

Italy’s market has also crashed down the price-to-book (P/E) ratio rankings as well with its index now offering a price-to-book (P/B) ratio of 0.8 – the lowest of any major index in the world. Although Italy’s index P/B ratio is nothing compared to some of those seen in the Italian banks - Banca Monte dei Paschi currently has a P/B ratio of 0.08. 

A corresponding development can be seen in the yield on offer in Italy’s FTSE MIB. Italy now has the third highest yield on offer in the world at 4.5%. Although yield hunters could avoid the risks of an Italian banking collapse and the uncertainty of prime minister Matteo Renzi’s October referendum by just investing in the ASX and still obtaining a higher yield.

Brexit has not been a good month for global financials, with the MSCI global financials index losing 8.2% over the past month. Global risk-off sentiment and desire for yield and low volatility stocks has seen consumer staples, real estate, utilities and telecoms all see gains over the past month. Although the steady drum beat of UK REITs freezing redemptions in the wake of Brexit highlights the risks of some real estate funds.

The relative strength index (RSI) of recent 14-day momentum shows emerging markets are holding up much better in a post-Brexit world than developed markets. China’s CSI 300, India’s Nifty Fifty, Brazil’s IBOVESPA, and Hungary’s BUX continue to rank near the upper end of the RSI charts.

Hungary BUX

Hungary’s BUX has now surpassed its pre-Brexit close of 26,800 and has seen some fairly strong momentum behind its post-Brexit performance. The index has now gained 4.8% since its 24 June close. The benefit to many of its exporters from the big drop in the Hungarian forint looks set to help the index to continue to gain.


The momentum style factor continues to perform well in the MSCI USA. And the diminished yield of the post-Brexit world has seen investors jump back into big name tech winners like Facebook and Amazon. This has helped the NASDAQ recover almost all of its Brexit losses, and now it sits on the verge of breaking above the Ichimoku cloud, which would be a strong confirmation that it is now in an uptrend.


Investor sentiment has very much turned on Italy in the wake of Brexit with concerns centering on the banking sector. Prime minister Matteo Renzi has taken a leaf out of David Cameron’s questionable playbook and committed himself to a major referendum in October to reform the political system. There are so many risks building up in Italy in the near-term it’s difficult to see a major turnaround in the index barring a substantial EU-backed bank bailout, which seems unlikely at the current juncture.

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