Why the unloved FTSE 100 is lagging rivals

It is tempting to blame the FTSE-100's lurch into correction territory simply on concerns over trade wars between the US and China.

After all, all of the Footsie's European peers have also fallen sharply since it became clear President Trump was going to slap tariffs on a number of Chinese imports, a measure to which Beijing has retaliated overnight.

Yet none of the main European indices have fallen to the same extent as the Footsie.

The UK's main index has on Friday hit a level last seen on 12 December 2016.

By contrast, the Xetra Dax in Germany is merely back to a position it touched earlier this month and the CAC 40 in France at a level where it had been at the beginning of February.

Further afield, the main US stock index, the S&P 500, has merely slipped to a point last seen on 12 February, while the Shanghai Composite in China has drifted to a level previously reached on 9 February.

The Hang Seng in Hong Kong is where it was on 7 March.

Only the Nikkei in Japan, which contains a lot of companies that could be at risk in the event of a major trade war between the US and China, has experienced anything approaching the reverses the Footsie has suffered of late - and even it has only fallen to levels last seen at the beginning of October last year.

So the Footsie has fallen harder and faster than any of its main international peers.

The longer term graph is more pitiful still.

At the time of writing, the index is actually lower than its closing value of 6,930 achieved on the final trading day of 1999.

In other words, if you had bought a fund tracking the index in the dying hours of the 20th century, you would have absolutely no capital gain to show for the intervening period - although you would still be up on the investment thanks to dividend payments yielding roughly 3% each year.

By comparison, the S&P 500 has almost doubled in value, as has the Xetra Dax.

Even (Taiwan OTC: 6436.TWO - news) the sleepy old Nikkei is up almost 9% on its close at the end of 1999.

So the FTSE-100 does seem particularly unloved among major stock indices.

This was confirmed this week by the influential monthly survey of fund managers, compiled by the stockbroker Bank of America Merrill Lynch, which revealed that pessimism towards UK equities is at an all-time high.

A net 42% of investors told BoAML they were "underweight" the UK.

Not only that, but UK equities were revealed to be the most-favoured "short" position among market professionals, which is to say that the UK stock market is the most popular asset for investors to sell in the expectation of further drops in prices.

There are a number of reasons why investors are shunning the UK.

The most obvious is that the UK economy has the weakest growth prospects of all of the major global economies.

That in turn means a lacklustre outlook for profits growth at companies that are particularly exposed to the UK economy.

However, the FTSE-100 is an international index, with the companies in it deriving more than half of their earnings from outside the UK.

Only about a quarter of earnings enjoyed by FTSE-100 companies are generated in the UK.

To that extent, the prospect of trade wars is a concern, particularly with the Footsie being packed with miners like BHP Billiton (NYSE: BBL - news) , Rio Tinto (Hanover: CRA1.HA - news) , Glencore (Frankfurt: 8GC.F - news) and Anglo American (LSE: AAL.L - news) , all of whom rely on Chinese demand to a significant extent.

Another factor is Brexit.

Some Footsie stocks, particularly some banks and manufacturers that do a lot of cross-border trade with the EU, face a great deal of uncertainty just now.

Investors lack clarity over the kind of Brexit deal that the Government will achieve with the EU and, until they have it, they will naturally be cautious about such stocks.

Another factor deterring investors from the UK is the possibility of a Labour government led by Jeremy Corbyn pledged to higher personal and corporate taxes and nationalisation of PFI contracts and some utilities.

A number of Footsie constituents, including Severn Trent (Other OTC: STRNY - news) , United Utilities (LSE: UU.L - news) , National Grid (LSE: NG.L - news) and Royal Mail (LSE: RMG.L - news) , are among those businesses that John McDonnell, the Shadow Chancellor, has promised to take into public ownership - a prospect that Paul Drechsler, president of the CBI, said last week was frightening investors when combined with the prospect of a hard Brexit.

He said: "Confidence is everything. And every day, I'm hearing of potential investors in this country reaching for their coats.

"Because they're not going to risk putting their money into an economy that soon might face export barriers to its single biggest market, let alone invest in companies, assets and services that could soon be taken over by the state."

The people at the helm of most UK businesses are now at least as worried, if not more so, about a hard-Left Labour government as they are about a hard Brexit.

And, accordingly, so are the market professionals who invest in those companies.

As Ben Seager-Scott, chief investment officer at wealth manager Tilney Group, put it recently: "A Labour government is unambiguously bad for capital markets."

One factor particularly worrying investors is the hint of capital controls that prevent investors getting their money out of the country.

Mr McDonnell admitted at a fringe meeting at last September's Labour conference: "What if there is a run on the pound? What happens if there is this concept of capital flight?

"I don't think there will be, but you never know, so we've got to scenario-plan for that."

As Iceland discovered, when it imposed capital controls after the financial crisis, people will not invest in your country if they do not think there is a reasonable chance of later being able to get their money out.