The news has hit the FTSE 250 hard, and as investors returned to the market after the weekend, the index shed more than six percent during the early part of the day’s trading, while the FTSE 100 slipped by a more modest 1.6 percent - thanks in part to its more global focus.
The FTSE 250 has outperformed wider markets for seven years, but the Brexit puts the UK economy in a difficult position. Domestic equities are under particularly heavy pressure because so many funds are heavily invested in them, and managers are looking to cut their exposure to the index because of its recent outperformance and the Brexit result. The markets have shown which sectors are going to be hurt the most, and fund managers and individual investors alike are eager to get away from them.
The FTSE 250 is facing more pressure in that if there is a recession, it will hit more consumer and discretionary sectors, of which there are many in the index. In addition, engineering stocks would likely be hit by cuts in capital expenditure, and again there are many of those in the market. Collectively, this is making it hard for investors to put money on the index.