The FTSE 100 surged another 1 per cent today to an all-time high above 7,850 as favourable global conditions saw investors continue buying into UK stocks.
As fears of a trade war between the US and China dissipated and the pound continued its downward trajectory, the blue-chip index rose by 80.38 points to close at 7859.17 – the first time it has been above 7,800 and not far off its intra-day high of 7,868.
In the US meanwhile, the Dow Jones had powered 1.4 per cent higher to 25,055.
The US has decided to suspend its plans to impose tariffs on $150billion worth of Chinese imports, and in exchange Beijing is planning on significantly increasing its purchases of US goods.
New record for Footsie: The blue-chip index rose by 79.4 points to close at 7859.17 – the first time it has been above 7,800 and not far off its intra-day high of 7,868.
The Footsie is now 14 per cent above its 2018 low of 6,888 which it hit in March, after trade war fears prompted investors to sell equities in order to dial down on risk.
Among the biggest risers were G4S, Marks & Spencer and WPP. Burberry and AstraZeneca received a relief boost as they have extensive interests in China and it looks less likely that their markets will be restricted – and the latter was also boosted by a drug approval from US regulators.
Today’s rise will be a welcome boost for Mark & Spencer, which has been under pressure as hedge funds have bet against it and is in danger of dropping out of the Footsie.
Richard Stone of The Share Centre said that, rather than the ups and downs of the US-China trade spat, the key drivers for this recent rally in share prices have been ‘continued global economic growth and accommodative monetary policy’.
‘This has been helped in the UK by the fact that weak growth in the first quarter of 2018, largely believed to be a result of particularly bad weather rather than anything more fundamental, has delayed the next rise in interest rates,’ he added.
Volatile: The FTSE 100 indexwas trading as low as 6,888 in March after trade war fears had hit stock markets.
‘Sterling has fallen as a result and overseas earnings have become worth more in sterling terms – something which is particularly important to many FTSE 100 companies which operate internationally.
‘At the same time the oil price has continued to climb, pushed yet higher by political tensions between the US and Iran. This is helpful to many of the oil and gas related stocks which are an important constituent of the FTSE 100 index.’
Finally he noted that merger and acquisition activity continues to flourish: ‘the SSE proposed merger with Npower and Sainsbury’s proposed merger with Asda being just two recent examples’.
Russ Mould, investment director at AJ Bell, said that ‘all eyes will now be on whether the FTSE 100 can break through the 8,000 barrier’ – a level that would represent a gain of 4 per cent on the index’s year-open just above 7,600.
He added that while global conditions are favouring equities there are particular traits that mean UK stocks are currently popular – see box below.
WHY ARE UK STOCKS IN VOGUE?
Russ Mould, investment director at AJ Bell, looks at four factors that have helped power the FTSE 100 to record highs:
1. The FTSE 100 underperformed its global stock market peers in total return, sterling terms in 2016 and 2017, something that will have not gone unnoticed by contrarian bulls.
2. Unloved often means undervalued and the UK is not expensive relative to its international peers or its own history on an earnings basis, with the FTSE 100 trading on around 14 times consensus earnings estimates for 2018. In addition, there are a number of sectors – oils, retailers, real estate, house builders – which offer lowly valuations, attractive yields or both and therefore have the potential to surprise on the upside in 2018.
3. The pound’s latest swoon is a further bonus – the FTSE 100 gets a good two-thirds of its earnings from overseas and the lower the currency goes, the more those profits are worth in sterling terms. The weak pound has the additional advantage of making British assets cheaper for overseas buyers and if sterling keeps sliding there has to be a chance for fresh bids to emerge for British firms – Sky, Smurfit Kappa and Shire are already all FTSE 100 firms that are subject to approaches from overseas firms.
4. The FTSE 100 offers a dividend yield above 4 per cent, according to an aggregate of consensus dividend forecasts for each individual constituent. This beats cash and the 1.49 per cent yield offered by the benchmark 10-year Government bond, or Gilt, hands down. Such a yield could be a source of support for the index and chip in a healthy percentage of total returns from UK stocks in 2018. Granted, dividend cover is thinner than ideal, but the higher the oil price goes the safer the dividend yield from BP and Shell becomes and they represent nearly a fifth of total dividend payments between them.