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Investors’ smart reaction to FTSE all time high

28 May 2018

Chris Stevenson, director of Savings and Investments, Barclays, says he is encouraged by investor reaction to the FTSE’s record closing high

On Thursday 17 May the FTSE 100 closed at 7,787.97 points, just short of its record intraday high of 7,792.56 points hit in mid-January.

Smart Investor customers are well engaged with the UK market and encouragingly we see signs that they are using smart tactics to take advantage of recent market conditions.

In the two weeks leading up to the low in March, we saw a buy/sell ratio across customer trades of 57 per cent, a three per cent shift in favour of purchases against the typical norm of 54 per cent, suggesting our customers saw value in slightly weaker share prices.

By contrast, in the last two weeks, that ratio has dipped to 52 per cent, suggesting Smart Investor customers think it is a good point to take some profit from their investments.”

Will Hobbs, head of Investment Strategy, Barclays, added: “The first point to note is that in the short run, around 75 to 80 per cent of the variation in UK stock prices can be explained by foreign rather than domestic influences. This figure rises to over 90 per cent if one looks at the variations over a five-year horizon. So we can more or less tune out the current characteristics of the UK economic backdrop as a useful source of information on the FTSE’s performance.

“That then moves you on to the global influences on the FTSE.  The first and easiest point to make is that in a growing global economy all-time highs for stock markets should not be the norm nor the exception. Much like GDP, corporate profits will be reaching all-time highs on a regular basis, therefore so will the share prices and total returns on which they are based.

“More specifically to the FTSE, the current buoyancy of oil prices will be helpful to an index that leans relatively heavily towards commodities.

“There are nonetheless some offsetting factors for the FTSE that help to relegate it down our pecking order of favourite equity indices. The most important of these is that in a world where the cyclical prospects remain bright, outside of its commodities exposure, the FTSE leaves you with relatively less skin in the cyclical game than other stock markets. In such a context, the FTSE should be relatively weighed down by its heavy exposure to the more defensive sectors such as consumer staples, utilities and pharmaceuticals.  Meanwhile, its banking sector lacks the recovery appeal of its more persistently troubled continental European peer group.

“These same properties grant the index some diversification appeal and therefore a place in portfolios, however in spite of a relatively appealing valuation and an already disenchanted investor community, we see greater short-term upside in the stock markets of US, Continental Europe and Emerging Asia.”

 

 

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