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Tough year for investors as UK markets weaken

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Tough year for investors as UK markets weaken

Camino Partners' NED, Suhail Mirza, discusses the performance of UK recruiters over the past year and considers the impact Brexit may have on the economy as we enter the New Year.

2018 has been tumultuous even as we head into the possibility of a “no deal” Brexit, which threatens to undermine already weak economic growth and investment forecasts from the likes of the British Chamber of Commerce. That many of the elected representatives of the UK people seem hell-bent on trying to see who can be perfect speaks of the paucity of the leadership in the political class at this critical juncture in the history of the UK and indeed Europe as a whole.

Significant share price falls

The FTSE 100 has declined by over 12 per cent during the course of the year opening on 3rd January at 7648 and closing on 18th December at 6701. In late May, it is sanguine to note it was threatening to breach the 8000 level (climbing as high as 7903 on 22nd May), since when it has fallen over 15 per cent.

The larger listed UK recruiters have generally, with honourable exceptions, had a pretty torrid time this year. Hays, the largest by market capitalisation (£2.04 billion), has seen its share price shaved by 19.7 per cent over 2018, falling from 174.42 to 1400. Its price/earnings ratio (“p/e”) stands at 12.38, which is relatively low by historical standards. SThree, market cap £364 million, has fared even worse falling by 26.2 per cent from 370p to 273p. The poorest performer, however, has been Gattaca, market cap of £34 million, which has seen its market capitalisation plummet by nearly 65 per cent as its share price tanked from 305p to 107.5p. It has recently appointed a new CEO and the market will be keen to see what changes he can deliver in the new year.

Elsewhere Empresaria Group, market cap of £36 million, has also given its shareholders some worries as its share price has dropped by 17.8 per cent from 90p to 74p. Impellam Group, market cap of £293 million has managed to de facto tread water with its share price inching up from 582.5p to 587.5p.

Some exceptions to the decline

There have, however, been three listed recruiters for whom the year has been relatively rosy in terms of share price performance. PageGroup (market cap £1.56 billion) has enjoyed a rise in price of 6.6 per cent, from 444.16p to 471.6p. Staffline (market cap of £345 million) has hiked by 22 per cent from an opening of 1000p to 1220p whilst Harvey Nash (market cap £97.3 million) has ascended sharply from 87p to 128.5p.

There is little mystery behind the tremors felt in the market performances mentioned above. The FTSE100 has struggled and even the US indices have recently hit 14-month lows while Japanese stocks sank to 18-month lows in December.

The concerns over the performance of the global economy feature prominently in investors’ minds. Even as there are expectations of a rate rise from Federal reserve in December this is against a backdrop of murkier 2019 economic forecasts.

Brexit warnings from home and abroad

The Brexit debacle continues to cast a shadow over pundits and performers on the global economic stage. German business confidence has been reported to have hit its lowest level since 2016. The chief of the SEC in the US is exhorting politicians in the EU and UK respectively to ensure a “no deal” Brexit, should that happen, does not lead to market chaos.

Perhaps of particular worry for recruiters with significant interest in the UK economy is the warning (on 17th December) from the British Chambers of Commerce that the uncertainty over Brexit is likely to hit economic performance and investment even if a no deal scenario is avoided. The group, which represents 52 regional chambers of commerce, has stated that it expects subdued economic growth of 1.3 per cent in 2019 and 1.5 per cent in 2020. More worryingly, for longer-term growth and productivity prospects, it expects business investment to rise by only 0.1 per cent in 2019 having declined by 0.6 per cent this year. It pulled no punches as it stated: “With firms looking on with utter dismay at the ongoing saga in Westminster, many have hit pause on major investment plans, including plant, machinery and premises.”

One wonders whether those determined to place their own potentate atop the greasy pole of British (and party) politics will heed these dire warnings; or whether, like Nero, they will continue their fiddling as the pyre of economic uncertainty is well and truly lit.

This article was originally published in Recruitment International.

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