FTSE 100 is a measure of the world
So Resolution is to be replaced in the FTSE 100 (INDEXFTSE:.FTSE) by Investec, the first South African company to be listed in London. An index that was once a proxy for UK plc is now simply the portfolio for a host of global tracker funds.
Almost half the chief executives of the London Stock Exchange’s biggest 100 companies are not British, upto half the shareholders are overseas and 70 per cent of these groups’ sales are abroad. Many of them present their accounts in dollars and are registered in an offshore centre – but possibly headquartered in another foreign country.
They have little link to London except they list their shares there – and even then, the UK may be just one of the countries where they have a primary quotation. The Investec banking group now has duel London-Johannesburg listing but most of its shareholders are South Africa and it still makes three-quarters of its profits there.
But it is in cosmopolitan company in joining the FTSE. There is Netherlands-based Royal Dutch Shell in the top 100 alongside Irish-based WPP plus groups such as Kazakhmys, Fresnillo and Eurasian Natural Resources whose only connection with London is the Tube from Heathrow.
Nor do the companies represent the UK economy. Nevermind that 60 per cent of British workers are with small firms that are not, by definition, in the index of the 100 largest quoted companies, almost a fifth of the FTSE companies are in oil and gas with another 15 per cent in basic materials. Even after the crash, a quarter are financial-service firms.
Manufacturing makes up just 8 per cent of the FTSE 350 – and much less of the top 100 – which is less than half its contribution to the economy.
Just three companies – including two oil giants - account for a quarter of the FTSE 100’s value, five companies make up a third and the top ten constitute almost 50 per cent, leaving the other 90 per cent, now including Investec, to make up the other half. The biggest company is more than 60 timers larger than the hundredth.
This wouldn’t matter if it was not that so many investors regard the FTSE 100 as a representation of UK business – an equity stake that reflects UK earnings and is free of currency distortions. Pensions funds buy into it through tracker funds and derivatives based on the index. And ironically, it is the unintentional overseas exposure that they gain that has probably provided the stability and growth to their investments in recent years.
March 11th, 2010 at 10:58 am
Investec is not the first South African company:
Anglo American is perhaps the largest South African-born company. Founded by South Africas Oppenheimer family it has deep roots in the country - it is also dual listed. SAB Miller is another (SAB standing for South African Breweries - a separate entity before the acquisition of Miller of the US. There is also of course Old Mutual.