FTSE up 300 points since new year
The FTSE 100 Index sealed its best first half of a year since the dotcom boom today, despite increasingly gloomy signs for the economy.
Upbeat company profits and the prospect of lower interest rates have helped the top flight rack up nearly 300 points since the start of the year – its strongest January to June performance in six years.
Troubles on the high street and disappointing economic growth figures have not stopped investors ploughing their cash into equities – confidence that was underlined by online poker group PartyGamings £5 billion stock market debut this week.
The Footsie’s rise from 4814.3 at the start of January to 5117.7 by mid-afternoon today is in sharp contrast with events across the Atlantic, where the Dow Jones Industrial Average is well below its 2005 opening mark.
Market watchers say company success has played a major part, with heavyweights like Shell, BP and HSBC among those raking in billions of pounds in profits.
Simon Rubinsohn, chief economist at fund manager Gerrard, said one of the reasons why the Footsie had been able to buck the economic gloom had been because only an estimated 30% of blue-chip profits were sourced in the UK.
He added: “The US economy and bits of the Far East are not in such bad shape, with the US in particular continuing to power ahead. And in the UK, expectations that rates may fall is not a bad thing for companies.”
Many analysts have upgraded their forecasts for the full year performance of the Footsie following the recent surge.
Jeavon Lolay, senior economist at Lloyds TSB, said he was now expecting the top flight to end the year at around 5,100 or 5,200, up slightly on initial predictions.
“I think we have to be surprised given the outlook for the economy at the moment,” he said.
“A lot of economic indicators are mixed and yet the stock market continues to do well.”
He said the recent slowdown in the UK housing market had contributed, as it made investing in property less attractive and meant people were ploughing their cash into shares instead.
“In recent years people were moving into areas like buy-to-let, but they have been reconsidering. Therefore investing in housing isn’t probably as incentivised as equities.”
Interest rates have remained on hold at 4.75% for 10 months and are widely-tipped to move lower by the end of the year.
Richard Hunter, head of UK equities at Hargreaves Lansdown stockbrokers, pencilled in an end-of-year figure of 5050 for the FTSE 100 Index in January – a forecast he stuck by today.
He added: “Worries at the start of the year about the US economy have now been replaced by worries about our own consumer spending. We have quite a few corporate earnings figures coming up in July and August, and that will give us a much clearer picture about whether the improvement over the first six months has been justified.”
