However, Fidelity International multi-asset portfolio manager Nick Peters cautions investors that it might be too early to start celebrating the FTSE 100’s gains because they are formed off the back of a perception that the UK economy is in a worse place, which could change.
Still, he thinks there are indications that sterling could depreciate further: “Going forward, sterling is likely to depreciate further so we could see the FTSE 100 head higher still. Other potential positive drivers include the oil price moving towards our expected $50-60 range.
“This will obviously boost the earnings of the likes of index heavyweights such as BP and Shell. Another perhaps medium-term driver would be signs that monetary policy and (much hoped for) fiscal policy lead to a pick-up in economic growth.
“A subsequent pick up in interest rates and rebounding bond yields would be a significant boon for the financials which make up a significant part of the index.”
Hargreaves Lansdown senior analyst Laith Khalaf conceeds that “the near-term path for the stock market is, as always, unpredictable,” but he does think that valuations of UK stocks have achieved a nice median.
“While UK stock market indices may be at, or near, historic highs, that does not necessarily mean UK stocks are expensive,” he said.
“If you compare share prices to company earnings, the valuation of the UK stock market is actually somewhere in the middle of its historic range, neither particularly cheap, nor dear, at current prices. This is in stark contrast to the former peak of the market in 1999, when the price-earnings ratio of the UK stock market stood at an eye-watering level.
“The near-term path for the stock market is, as always, unpredictable. There is never any lack of macro-economic worries to deter potential investors from putting their money to work in the stock market, and that holds true today, nonetheless the historical score card suggests it is a good home for long term investment.”
