FTSE 100 hits new heights

The FTSE 100 briefly reached a new record high value today, touching 7,129.83, surpassing its previous April 2015 peak of 7,122.

Following a false-start this morning, the UK’s flagship index, which follows the financial fortunes of the UK’s 100 largest listed companies, rose from around 7,090 to its new high-watermark just after midday.

But the gains were short-lived, with the index falling back down to 7,095 at the time of writing, which is roughly where it began the day.

 

FTSE 100 reaches new record heights

(Click the image below to enlarge)

Source: Interactive Investor

But some argue the FTSE’s fillip just comes down to a weak pound. Since the immediate aftermath of the referendum, when the index plummeted, the FTSE has pushed ever higher while sterling has travelled in the opposite direction.

Laith Khalaf, senior analyst at Hargreaves Lansdown says: “This is a hollow victory for the UK stock market, because it has been based on movements in the currency markets rather than any positive reassessment of the productivity of UK-listed companies.

“Nonetheless UK investors will still be cheered to see a boost to their pension pots and ISA valuations, as it represents a genuine increase to their wealth in pounds and pence.

“The concern will be that a reversal in fortunes for the currency could see the gains wiped off as quickly as they appeared. That may well be the case, though it’s hard to see anything in the foreseeable future that’s going to propel the pound back to its former glory.”

 

The latest surge was due to comments from the Bank of England that the UK’s interest rates are likely to stay low for the foreseeable future, according to Tom Stevenson, investment director at Fidelity International.

He says: “Today the FTSE 100 reached an all-time intra-day high of 7,129.83, as the pound continued its slide and a member of the Bank of England’s rate-setting committee saying that interest rates would stay low even if inflation begins to rise.

“The pound has fallen further today as fears have grown that financial companies are re-assessing their London operations and a leaked report put a £66bn price tag on Brexit.”

Rebecca O’Keefe, head of investment products at Moneywise’s parent company, Interactive Investor, adds that the currency movements are masking divergent performance of individual companies.

She says: “The reality is that individual shares are sectors are experiencing dramatically different fortunes. The FTSE 100 has become polarised between stocks which are perceived to be benefitting from weaker sterling and the prospect of Brexit and those which have fallen out of favour as currency and referendum concerns grow.”

Look further afield for top returns

While the FTSE’s recent rally has boosted returns for anyone who’s invested in the index, the demise of sterling has also boosted the fortunes of UK investors who put their money in companies operating overseas.

Over the last six months, the FTSE 100 surged by 14.5% during the post-Brexit period. By contrast, the American S&P 500, which tracks 500 of the USA’s largest companies gained a measly 6%.

However, that’s not the full story for UK investors, as if you’d invested in an UK-based S&P tracker (priced in sterling), your returns would have been amplified by the dollar’s gains against the pound.

In fact a £10,000 investment in an S&P tracker would have rocketed by more than 20% in just the last six months, and would now be worth £12,150, leaving the FTSE 100 in the dust.

This isn’t to say you should put all your money in America, or indeed in any one currency, but it’s a note of caution against reading too much into the FTSE’s recent rally.

Where next for the FTSE?

On what’s next for the FTSE, Mr Stevenson says: “Since reaching its previous high last year we have seen the markets fluctuate, hitting a low in February 2016 of 5,499, before recently bouncing back today to record an increase of 30 per cent. The question that many investors will now be asking themselves is can the market sustain this current run?

“Despite reaching a new high, the valuation of the UK market is not excessive and still looks attractive for investors looking to shares for income, growth and stability.”

Ms O’Keefe adds: “The future of the FTSE 100 remains uncertain, but what is clear is that there are plenty of trading opportunities for investors, depending on your short and long term view of how the UK will cope with the pressures ahead.”

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