The FTSE 100’s high: what the experts think
● Limping home
It has been a long time coming, but the FTSE, that “laggard”, has finally hit a new alltime high, said Ian King on Sky.com. On Monday, the FTSE 100 climbed above the “dizzying heights” of 8,047.06, which was last achieved in February 2023. (It hit another high on Tuesday.) Is this a reflection of Britain’s improving economic prospects? “Emphatically not.” The index is “chock-full of companies” that “have little or nothing to do with the UK”. And many of its “British” constituents make most of their money internationally. Of the 20 biggest companies in the index, only Lloyds Banking Group can be said to make most of its income in the UK. The better gauge of how “corporate Britain” is faring is the FTSE 250, which is up by 0.6% this year – and still a whisker lower than it was five years ago.
● Fake high?
What has been fuelling the FTSE 100’s “broad rally”? The trading switch from “high-flying” tech stocks “into commodities” (a Footsie speciality) has helped, said Stephanie Stacey in the FT. But the real driver has been currency movements – reflecting the diverging paths of US and UK interest rate cuts this year. Thanks to sticky US inflation, markets are “increasingly betting” that the US Fed will keep interest rates “higher for longer”, while the Bank of England is expected to start cutting in August. “It’s very much about rate differentials,” said Barclays strategist Emmanuel Cau. The upshot is a strengthened dollar and weaker sterling: good news for FTSE companies that make their profits in dollars, but report them in sterling.
● Boring argument
Despite the FTSE’s fresh high, “in a global context, performance remains disappointing”, Frédérique Carrier of RBC Wealth Management told the FT. Indeed, UK stock valuations remain close to a record discount relative to their US peers. “A more uplifting thought”, said Nils Pratley in The Guardian, is that many shares are probably still a bargain. The UK market deserves its discount, “if you believe an overweight exposure to oil companies, miners and banks is just too boring or too Jurassic”. But there’s a decent “argument that dullness can be a relative virtue when the geopolitical temperature is high”.