With 285 companies in the FTSE 350 having reported (as of 15 March 2016), we estimate that second-half 2015 earnings per share (EPS) declined by 7.5% year on year (y/y).
With 70% of revenues coming from overseas, weaker growth in emerging markets and Europe has combined with a strong pound to hurt earnings. But both growth and currency headwinds now look to be easing.
Global growth is expected to slow slightly in 2016, to 3%, but the UK market should benefit more than most from a reduction in US recession fears and signs of stabilisation in China and other emerging market economies.
A closer look at our earnings model
There are a number of unusual features of the UK market that make it more difficult than in the US to track corporate earnings in a timely fashion. One key difference is that the vast majority of UK firms only report on a semi-annual basis, which explains why we will publish our UK earnings report only twice a year.
The main index used for our earnings updates is the FTSE 350 index, which is a combination of the FTSE 100 and FTSE 250 and therefore captures performance of UK large and mid cap companies. The main UK equity benchmark is the FTSE All-Share, which has a full list of 643 stocks and therefore incorporates an additional 300 smaller companies that are outside the FTSE 350. However, since the FTSE 350 represents 96% of the market capitalisation of the FTSE All-Share, we believe this index gives us a broad overview of UK earnings.
UK earnings report
Overall, we estimate that earnings for the FTSE 350 fell by 7.5% (y/y) in the fourth quarter of 2015 (Exhibit 1). Unsurprisingly, the biggest headwinds have come from the energy and materials sectors, which have been battered by falling commodity prices over the last few years.
The FTSE 350 has a 15% exposure to commodity sectors, which have seriously dented UK earnings performance in the last few years
Exhibit 1: FTSE 350 earnings per share growth
Change year on year
JPM UK Equity Core Fund
Our innovative UK Equity Core Fund’s low cost, low active risk approach aims to produce consistent returns from the UK stock market by taking many small active stock positions, while reducing risk at the sector level.
The trust aims to achieve capital growth through a portfolio of UK medium and small company stocks by targeting only the most attractive companies identified by our rigorous investment research process.
Please be aware that this material is for information purposes only. Any forecasts, figures, opinions, statements of financial market trends or investment techniques and strategies expressed are, unless otherwise stated, J.P. Morgan Asset Management’s own at the date of this document. They are considered to be reliable at the time of writing, may not necessarily be all-inclusive and are not guaranteed as to accuracy. They may be subject to change without reference or notification to you. JPMorgan Asset Management Marketing Limited accepts no legal responsibility or liability for any matter or opinion expressed in this material.
The value of investments and the income from them can fall as well as rise and investors may not get back the full amount invested. Past performance is not a guide to the future.