The last six months have seen the Lloyds Banking Group PLC (LON:LLOY) (LLOY.L) share price fall by around 13%. While that may sound like a disastrous result, it is not much different that the FTSE 100’s 14% decline during the same time period.
The bank, and many of its index peers, seem to have been negatively impacted by declining investor sentiment in recent months. Even though only a quarter of the FTSE 100’s income is generated within the UK, this is still a key market for a number of its incumbents. As a result, weakness catalysed in part by Brexit fears could cause its performance to lag other major indices over coming months.
For Lloyds, though, Brexit is due to an even bigger risk in my view. It generates almost all of its revenue from within the UK, and this could mean that demand for its products comes under pressure. Although it has recently reported that it is on track to deliver on its expectations, should the UK economy experience a downturn this may lead to operational challenges for the bank in my view.
At the same time, though, I feel that the Lloyds share price could enjoy growth in future years. I think that it is positioning itself for growth, and this could create a stronger business in the long run. For instance, it has improved the strength of its balance sheet in recent years according to my research, while reducing costs, expanding into new areas and investing in new technology. All of these factors could act as catalysts on its valuation in future years.
In the next six months, though, there seems to be a significant amount of uncertainty. While I think that some of it may be scaremongering regarding the potential impact of Brexit, I do think there could be some disruption from the event. As a result, more volatility may be ahead for Lloyds, but in the long run I’m optimistic about its recovery potential.