Rocketing FTSE 100 looks a Brit special
THE UK stock market has been shrouded in gloom for years as it trails global rivals, so it has come as a huge surprise to see the FTSE 100 suddenly rocket to an all-time high. London’s blue-chip index hasn’t just broken through the 8,000 barrier for only the second time ever, it has smashed it, racing past 8,400 on Friday after soaring 6 per cent in a month.
This is terrific news as most of us have exposure to the FTSE’S fortunes, through our company and personal pensions, and stocks and shares Isas.
It is particularly good news for pensioners who have put their retirement pots into drawdown, as this will boost their value and allow them to take more income.
Yet it may also come as a shock for Britons who gave up on UK shares and sought their fortunes on foreign bourses. Lately there have been rumours of the death of the UK stock market, as British giants such as Shell consider listing onwall Street to take advantage of higher valuations. Today, those reports look exaggerated.
FIGHTBACK
Twenty years ago, UK equities made up 10.9 per cent of the global total. Now that has shrunk to a pitiful 3.3 per cent, according to MSCI.
The FTSE has fallen behind since the financial crisis, when Britain paid dearly for over-reliance on banking stocks. The chaos and controversy surrounding Brexit didn’t help. Neither did pandemic lockdowns and the cost-of-living crisis.
Wall Street raced ahead thanks to the so-called Magnificent Seven US tech mega-caps: Amazon, Apple, Google owner Alphabet, Facebook, Microsoft, Nvidia and Tesla.
No UK company can match their global reach and growth potential.
The FTSE 100 is mostly made up of old school companies in slow-growing, established sectors such as financials, energy, mining and defence. They may not offer as much growth, but they pay plenty of income.
The FTSE 100 offers of some of the most generous dividends in the world, with some stocks yielding income of 6 per cent a year or more, far more than US counterparts. Finally, they’re delivering some growth, too.
BONANZA
Foreign investors have finally woken up to just how cheap UK stocks are, trigging a “bidding bonanza”, said Chris Beauchamp, chief market analyst at online trading platform IG: “Even with the FTSE 100 at a record high, UK stocks look cheap compared to their US cousins and traders are piling in.”
FTSE 100 shares are valued at around 12.4 times earnings. US stocks listed on the S&P 500 trade at 33.95 times earnings, almost three times as much.
Inflation now looks set to fall faster in the UK than the US, allowing the Bank of England to cut interest rates sooner, possibly next month.that will ease the pressure on consumers and businesses, and give the economy and stock market another lift.
Investors are typically forward looking, looking past today’s gloom to where the economy will be in six to nine months’ time.
They are increasingly optimistic as the UK pulls out of recession, said Jason Hollands, managing director of investment platform Bestinvest, who added: “And it’s high time, too.”
At the same time, the Magnificent Seven look a little unsteady in the saddle, with electric car maker Tesla crashing 30 per cent so far this year, and Apple struggling too.
RALLY
Pension and Isa savers who check their portfolios should see the difference, according to new research from Pensionbee. It found the average retirement pot jumped by 16 per cent over the last year, from £17,379 in March 2023 to £20,077 this year.this figure covers savers of all ages, including those just starting out. Pensioners tend to have bigger pots and will have done even better from the stock market resurgence.
Unfortunately, many British investors will have missed out on the UK recovery.
Figures from Hargreaves Lansdown show not a single one of the top 10 best-selling stocks and shares Isa funds invests in the UK. Instead, names such as Jupiter
India, Artemis Global Income and Baillie Gifford American dominate.
Head of investment analysis and research Emmawall said UK investors are slowly waking up to the domestic resurgence, but it’s not the only country doing well: “This year, stock markets in the UK, Japan, India and US have all recorded new all-time highs.”
‘Even with the FTSE 100 at a record high, UK stocks look cheap compared to the US’
INVEST
Yet the UK has beaten them all over the last month, an astonishing performance given the gloom at home. Investors could take advantage of this by buying a simple tracker fund, such as the ishares Core FTSE 100 UCITS ETF.
For those who prefer actively managed funds, Hollands highlights Fidelity Special Values, Mercantile Investment Trust and the Murray Income Trust.
Investing in shares will always be riskier than leaving money in cash, but it is typically more rewarding in the longer run.
After a tough decade, UK shares are fighting back.we should all cross our fingers and hope that the recovery continues.