Why Should One Consider Buying Shares Listed On The London Stock Exchange?

  • Mar 19, 2019 GMT
  • Team Kalkine
Why Should One Consider Buying Shares Listed On The London Stock Exchange?

There are several reasons to invest in publicly traded companies on the London Stock Exchange.

One reason out of that is there are many big corporates listed on the London Stock Exchange, especially the large caps. Take, for example, Unilever Plc, Reckitt Benckiser Group Plc, Glencore Plc, Diageo Plc and many more.

The second reason is that London Stock Exchange provides lower price scripts with high dividend yield on an average as compared with the shares listed on the Wallstreet.

The broader equity benchmark index FTSE 100, the blue-chip equity index of the 100 business with the largest free-float market capitalisation listed on the London Stock Exchange, is currently trading at price-to-earnings ratio of 14.53x with an average dividend yield of 4.61% and on the other side broader equity index of the US market the S&P 500 is trading at P/E ratio of 19.81x with an average dividend yield of 2.46%.

The London based companies that generate the majority of their revenue from their home market are facing a tough time, and their share price has gone north since the referendum on Brexit took place on 23 June 2016.

As per Colin Morton, a portfolio manager at Franklin Templeton, Uncertainties around the Brexit have jolted the sentiment of investors but still, there should be potential opportunities could be found."

He also added "scripts with attractive dividend yields in sectors facing a tough time over the next three to nine months" that "seem to us to be a good investment."

While sectors like Oil and Financial Services might found themselves more exposed to the macroeconomic factors, Mr Colin also said that for another business the concern might be overstated, in particular, he indicated Homebuilders.

Last month the rating agency Fitch warned that they could reduce Britain’s credit rating if the UK leaves the European Union without any formal deal. They also added, in the wake of no-deal Brexit, Britain could face recession similar to the 1990s, with 2% plunge in GDP over 18 months.

The broader equity benchmark of the London FTSE 100 index tends to move in the opposite direction to the pound, as weakness in the sterling will boost the value of the FTSE 100 constituent’s overseas income. However, stock's which are earning the majority of their income from the home country will experience losses on account of weakening pound.

Although on March 14, 2019, House of Commons has voted to delay Brexit process for three months, the members of the House voted in the House of Commons by 412 to 202, to seek an extension to Article 50 from European Union. This has increased the chances of a new referendum on Brexit.

Conclusion

However, Britain is experiencing a tough time due to the fog of Brexit, but still, there are ample amount of opportunities in which investor could make money. Equities on the London Stock Exchange are trading at a lower price-to-earnings ratio with higher dividend yield as compared with the equity's PE ratio in the United States with relatively lower dividend yield.

With Bank of England reducing the interest rates to a historic low level, the spotlight is back on diverse investment opportunities. 

Amidst this, are you getting worried about these falling interest rates and wondering where to put your money?

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