Investors see FTSE 100 hovering short of a new record

LONDON: British stocks have already powered through a record high this year. Now, investors expect the FTSE 100 index to hold just shy of a fresh record by this time next year as sluggish economic growth slows returns.

Investors expect British stocks to end this year more or less unchanged, sticking close to their current levels, as worries over the approaching divorce date with the European Union rein in stock market gains.

A Reuters poll of more than 30 fund managers, brokers and analysts conducted in recent weeks predicted a median gain of 1.5 percent for the FTSE 100 across 2018, to end the year at 7,800 points - which would be 2.2 per cent up from Tuesday’s close.

The FTSE 100 is set to lag an expected 5.6 per cent gain for the euro zone’s largest companies this year.

Respondents saw Brexit negotiations as key, given the index’s sensitivity to sterling which has remained under pressure since Britons voted, nearly two years ago, to exit the European Union.

“The UK market will ebb and flow with the success or otherwise of Brexit negotiations,” said Gary Waite, portfolio manager at Walker Crips.

Investors polled by Reuters saw the FTSE 100 rising to 7,900 points by the middle of 2019, after the deadline for Britain’s formal exit from the EU at the end of March.

The index would fall back again to trade at 7,850 points by the end of that year, however, according to the median.

Led higher by gains for its large, dollar-earning constituents, the FTSE 100 has risen around 25 per cent since the June 2016 Brexit vote.

Even though the pound has clawed its way back to its highest level since taking a plunge in the immediate aftermath of the referendum result in June 2016, it remains nearly 11 per cent below its pre-vote level and is expected to be volatile.

But despite the boost from the currency, the FTSE is down 0.7 per cent so far this year.

Rising inflation and sluggish growth have hit businesses and consumers alike, with a number of high-profile profit warnings from Debenhams, Greggs, Carpetright and Micro Focus, to name a few, and the collapse of outsourcer Carillion giving investors reason to be cautious over investing in Britain.

“UK economic growth expectations are weakening and Brexit remains a longer-term threat,” said Craig Hoyda, senior quantitative analyst at Aberdeen Standard Investments, adding that he is underweight the market.

Britain’s economy almost stagnated in the first quarter, recording GDP growth of just 0.1 percent as falling business investment and weak household spending took their toll.

But some investors are being tempted to take another look at UK equities given the relatively cheap valuations. The broader FTSE 350 index trades at a 7.3 per cent discount to world equities. — Reuters