By Josephine Mason
LONDON, Sept 4 (Reuters) - Growing worries about Britain crashing out of the European Union and a general election that could usher in a new government and major changes to UK Plc have steepened the discount for London-listed companies with exposure to the domestic economy.
Shares in London-listed companies that make the bulk of their revenue in Britain have suffered since the June 2016 referendum on European Union membership.
But worries about a no-deal Brexit have grown following the appointment of staunch Brexiteer Boris Johnson as Prime Minister in July.
His implicit threat on Monday night to lawmakers to back him on Brexit or face an election reignited an old worry for investors - a potential victory for the opposition Labour Party.
Aside from a Labour government, there are two main options from an election: a Brexit-supporting government under Johnson or a hung parliament that could lead to a coalition or minority government of some kind.
No-deal Brexit worries combined with fresh upheaval over a general election have made UK assets even less palatable, said Edward Park, deputy chief investment officer at Brooks Macdonald.
"The outcomes are becoming more extreme and political backdrop is getting rockier and that's that discount is coming into markets as well," he said.
JP Morgan's UK domestic plays index that tracks about 30 UK stocks that make all or most of their revenue at home was down 1.4%, heading for its worst day in two weeks and lagging the blue-chip FTSE 100 index.
In contrast, the JP Morgan index that follows UK-listed companies making their money abroad was down 0.2%, outperforming the London blue chip index and the major European bourses which were all deep in the red.
The yawning gap between the domestic and exporter indices was the widest since their inception shortly after the referendum.
The domestic index's discount to the London blue-chip benchmark since the start of the year widened to 6.6% Tuesday, while the exporter heavy index has beaten by 3.8%.
(Reporting by Josephine Mason, editing by Ed Osmond)