Stock markets and pound plunge on 'Black Friday' as Britain votes for Brexit
Both the FTSE 100 and the pound have fallen dramatically in early trading on the back of Britain voting to leave the European Union. Financial markets are in freefall in early trading, following the United Kingdom's vote to leave the European Union.
Panicked investors dumped shares in their droves, with the FTSE 100 down 6.6%, or 420 points, to trade just above 5900 at 8.30am.
Bank and housebuilder shares were the biggest losers, in what is already being described as a 'Black Friday' for stock markets.
Barclays and RBS were down about 30%, while Bovis Homes and Bellway had fallen 56% and 36%, respectively.
The pound plummeted overnight as it became clearer that the 'leave' campaign was likely to emerge victorious.
At one point it hit $1.3305, a fall of more than 10%. This represents a low not seen since 1985. At 8.30am the pound was down 8.3%, to trade at $1.36350.
The 'leave' campaign won by 52% to 48%, with the majority of regions across England and Wales voting for a Brexit.
In the wake of the result David Cameron has announced he will step down as prime minister in October.
European markets have also plunged, both the French Cac and German Dax are down 9.7% and 8.1%, respectively.
Rebecca O'Keeffe, head of investment at stockbroker Interactive Investor, said market carnage has been pronounced due to the fact that the market had priced in a remain victory. “Global markets are in turmoil in the aftermath of the surprise UK ‘leave’ vote.
“Having spent all of the last week gearing up and going up in anticipation of a ‘remain’ vote, the carnage is even more pronounced in the currency, equity and bond markets as analysts and investors struggle to work out what fair value is.
“This leap into the unknown leaves a huge number of economic and political questions unanswered for both the UK and the wider European Union and this is adding to the uncertainty for investors. Will the immediate market moves be overdone, or is this the start of a protracted fall for both sterling and equity markets?”
This story was originally written for our sister website, Money Observer.
Investors who borrow money they use for investment and use the securities they buy as collateral for the loan are said to be “gearing up” the portfolio (in the US, gearing is referred to as “leveraging”) and widely used by investment trusts. The greater the gearing as a proportion of the overall portfolio, the greater the potential for profit or loss. If markets rise in value, the investor can pay back the loan and retain the profit but if markets fall, the investor may not be able to cover the borrowing and interest costs, and will make a loss. Also used to describe the ratio of a company’s borrowing in relation to its market capitalisation and the gearing ratio measures the extent to which a company is funded by debt. A company with high gearing is more vulnerable to downturns in the business cycle because the company must continue to service its debt regardless of how bad sales are.
A market-weighted index of the 100 biggest companies by market capitalisation listed on the London Stock Exchange. It is often referred to as “The Footsie”. The index began on 3 January 1984 with a base level of 1000; the highest value reached to date is 6950.6, on 30 December 1999. The index is “weighted” by how the movements of each of the 100 constituents affect the index, so larger companies make more of a difference to the index than smaller ones. To ensure it is a true and accurate representation of the most highly capitalised companies in the UK, just like football’s Premier League, every three months the FTSE 100 “relegates” the bottom three companies in the 100 whose market capitalisation has fallen and “promotes” to the index the three companies whose market capitalisation has grown sufficiently to warrant inclusion. Around 80% of the companies listed on the London Stock Exchange are included in the FTSE 100.