EdenTree's Harris: The devaluation conundrum

The impact of the sharp fall in sterling post the EU referendum against a range of currencies had some initially predictable effects on UK equity markets.

Large-cap stocks, with on average 70% of earnings overseas, were mechanically rerated to take account of 'cheaper' valuations. For the first year since the financial crisis mid caps saw significant underperformance, a direct correlation of the much lower percentage of lower overseas earnings and lower commodity exposure.  The post crisis premium to large caps has now disappeared. Now that these effects have washed through there are a number of important follow-on aspects for investors to appreciate in asset allocation and sector preferences. The rerating of large-cap stocks, driv...