The FTSE 100 is entirely useful, as long as you know what you're using it for


It's entirely true that the FTSE100 is not a very good guide to the performance of the UK economy, as The Telegraph points out:

To some degree that might be telling us that the economy is not quite as strong as it might look on the surface. But, more significantly, it is telling us that the FTSE has become completely unfit for purpose. It no longer reflects what is happening in the British economy.

But then again, no one has ever claimed, or no one has ever sensibly claimed, that the FTSE100 is supposed to be a guide to the performance of the British economy. It's a guide to the performance of shares listed in London, not of companies doing business in the UK. As people have known and have been pointing out for many years:

Research by the Capital Group, which manages more than £750 billion of assets, has shown that more of the FTSE 100’s revenues are earned internationally than had previously been believed.

Previous consensus estimates had held that two-thirds of FTSE 100 companies’ turnover was derived from overseas sales.

But the new study has raised this to 77%. According to the Capital Group, 30% of the FTSE 100’s revenues now come from emerging markets, 19% from the US, 17% from Europe excluding the UK, 5% from Japan, 4% from the rest of developed Asia, and 2% from Canada.

Having an economic measure is just lovely. But it does help if one understands what is being measured. In this case, the economic performance of corporations who happen, for legal, historical, or just the general plain flat out honesty of the place, list their shares in The City. As that, it works just fine.