Britain’s blue-chip index has hit a succession of record highs. In 2016, the first week in January, FTSE 100 closed on 5912 points. A year later, and the FTSE 100 is at 7,208 points. A 22% increase.
Although investors are cheering the increase the underlying reasons for the rise may take the shine off the achievement.
One of the main reasons for the rise is the fall in sterling. Almost 70% of FTSE 100 companies’ do business overseas. The weaker pound makes them far more appealing to overseas customers and clients.
Although the FTSE 100 rose by 19%, the weaker pound actually equates to a 0.2% fall.
Taking the FTSE 100 as a big picture is misleading. Not all companies are doing well. When examined close up it is clear that there are winners and losers.
The mining, oil, and gas industries saw big gain with oil and gas producers seeing a 61% increase, while the FTSE 350 mining index rose by a 100%. With it raised raw material prices, mining and refining of metals, forestry products, and chemical producers rose by 90%. Construction rose by 49%.
Retailers and the telecoms sectors were losers and lost 14% and 12% respectively. Real estate lost 32%.
Jason Hollands from Tilney Bestinvest, said, “Currency moves rescued markets for UK investors last year. If you were cautious a year ago, with concerns about the uncertain geopolitical outlook, then this year has similar warnings.”
Chris Wyllie, Connor Broadley’s chief investment officer, advised investors to buy the dips. He said, “There are going to be some bloodbath sectors for medium-sized firms, retail being one. More businesses will be going to the wall.”
Although the successive record gains are mostly positive, it is important that investors realise they do separate their feelings on the index from the economy according to Mike Bell of JP Morgan. He said, “The UK stock market is not that reflective of the UK economy. Investors’ view on the UK economy is not a particularly positive one.”