Is the FTSE 100 truly global?

What is the FTSE 100? A Quick Refresher

Many people believe the FTSE 100 is purely a measure of the UK economy. When you look at popular global stock market indices, you see the S&P 500 for the US, the Nikkei for Japan, and the FTSE 100 for the UK. This seems simple. But the reality is far more interesting. The companies on this index may be listed in London, but their business is everywhere.

The name stands for the Financial Times Stock Exchange 100 Index. It tracks the 100 largest and most valuable companies listed on the London Stock Exchange. Think of it as a scoreboard for the biggest players in the UK market. It was started in 1984 and has since become a key benchmark for investors all over the world. Newspapers and financial news channels mention its daily movements as a sign of market health.

However, its role as a simple health check for the UK is where the myth begins. To understand its true nature, you have to look beyond the stock exchange where these companies trade. You need to follow the money and see where it actually comes from.

The Case For the FTSE 100 as a Global Index

The strongest argument for the FTSE 100 being a global index is where its companies earn their money. The answer is simple: not in the UK. Studies consistently show that between 75% and 80% of the total revenue generated by FTSE 100 companies comes from their operations outside of the United Kingdom. This single fact changes everything.

Let's look at some of the giants on the index:

• HSBC: This is a massive global bank. While it has a large presence in the UK, a huge portion of its profits consistently comes from Asia, particularly Hong Kong and mainland China. Its fortunes are tied more to Asian economic growth than to what happens in London.
• Shell: A global energy titan. Shell explores for, produces, and sells oil and gas across the globe. A change in energy prices in the United States or demand from China has a far bigger impact on its share price than a change in UK consumer habits.
• Unilever: Walk into a supermarket in Mumbai, São Paulo, or Johannesburg, and you will find Unilever products. The company sells consumer goods like soap, food, and cleaning supplies in over 190 countries. The UK is just one small market among many.
• AstraZeneca: This pharmaceutical company develops and sells medicines worldwide. Its success depends on drug approvals in America, sales in Europe, and research conducted globally.

This global revenue stream creates an interesting effect related to currency. Most of these overseas earnings are in US dollars, euros, or other currencies. When the British pound is weak, those foreign earnings are worth more when converted back into pounds. This can cause the FTSE 100's value to rise, even if the UK economy is struggling. This is a classic behaviour of an internationally focused investment, not a local one.

The Argument Against: Why It's Still a UK Index

Despite the powerful evidence of global revenues, you cannot ignore the FTSE 100’s deep British roots. The companies are, without exception, listed on the London Stock Exchange. This matters a great deal.

First, being listed in London means these companies must follow UK laws and regulations. They report their earnings according to UK accounting standards and are subject to the UK's corporate governance rules. This legal and regulatory framework is entirely British.

Second, the index is very sensitive to UK political events. The best example is Brexit. The decision for the UK to leave the European Union caused huge volatility in the FTSE 100. While the weak pound helped boost its value later, the initial shock was driven by a purely UK-based political decision. This shows that no matter where the revenue comes from, the sentiment and stability of the home country have a direct impact.

Finally, the composition of the index reflects the UK’s economic history. The FTSE 100 is heavy with companies in so-called 'old economy' sectors. It has a large number of firms in mining, oil and gas, and banking. What it lacks is a significant presence in the technology sector, which dominates other global stock market indices like the S&P 500. This sector bias makes it less representative of the modern global economy and more a reflection of the UK's historic industrial strengths.

Comparing the FTSE 100 to Other Global Stock Market Indices

To get a clear picture, it helps to compare the FTSE 100 with its international peers.

The S&P 500 also includes huge multinational corporations, but a larger portion of their revenue (around 60%) comes from within the United States. It is therefore more closely tied to the health of the American consumer and the US economy. Its dominance by tech giants like Apple and Microsoft also makes it very different from the FTSE 100.

An index like the MSCI World Index is a true global benchmark. It is designed from the ground up to represent the entire developed world's stock market, holding thousands of stocks from over 20 countries. The FTSE 100 is just one small component of this much larger, more diversified index.

The Verdict: Is the FTSE 100 a Global Index?

So, where do we land? The FTSE 100 is not a simple UK index, nor is it a fully global one. The most accurate description is a UK-listed, globally-focused index.

For you as an investor, this dual identity has important consequences. By investing in a FTSE 100 tracker fund, you are buying into the growth of the global economy. You get exposure to commodity prices, Asian consumer growth, and the worldwide demand for medicine. This is its 'global' side.

At the same time, your investment is priced in British pounds and is directly affected by UK politics, interest rates, and regulations. This is its 'local' side. It is a unique hybrid that sits in a category of its own.

Thinking about the FTSE 100 as just a UK index is a mistake. Understanding its true, international nature is the first step toward making a smarter decision about whether it belongs in your portfolio. It serves as a great lesson: always look under the hood of an index to see what you are really buying.