By late morning it had sunk to 6925 as investors weighed up whether the leading UK index had hit its high water mark in the short term or not.
Markets experts have mixed views on what has propelled the FTSE to the record and on its prospects from here on over the coming months, with the potential disruption from the May general election looming large.
According to Henderson Global Investors’ chief economist Simon Ward the FTSE is being driven more by global factors than domestic however.
“The FTSE’s global and large cap orientation and its sector skew make it a poor representation of the UK economy, so the new high says little about domestic prospects,” Ward said. “The all-share index reached a new record as long ago as 2013. The FTSE break-out reflects positive global market developments rather than anything UK-specific. The global stock of money continues to rise much faster than economic output, implying “excess” liquidity to drive up asset prices.”
Ward also noted that while the wider global economy is the major factor there are domestic reasons for concern over the FTSE’s prospects this year in the form of the upcoming election and the UK’s large current account deficit of 5-6% of GDP.
J.P. Morgan Asset Management’s chief market strategist Stephanie Flanders also sees the upcoming election as less crucial to UK markets than outside factors.
“Usually it would be the prospect of a left wing Labour leader gaining power that would be frightening the city,” Flanders said. “But unlike David Cameron, Ed Miliband has not committed to holding a referendum on staying in the EU. For many in the square mile, that is a more worrying prospect than even a mansion tax or the reappearance of the 50p top income tax rate.”
“All of which spells trouble, you might think,” Flanders added. But I would caution against making easy assumptions about the relationship between politics and economics. Markets were serene when the UK did not have a government for several days after the 2010 election,” she noted.
Head of investing at AXA Wealth Adrian Lowcock is relatively bullish on how the FTSE is likely to perform from here.
“The December 1999 all-time has been a major psychological barrier for investors over the past 15 years,” Lowcock said. Yesterday is a watershed moment and investors can finally put the dotcom bubble that caused the last high behind them.”
“The stock market has been held back by concerns over the oil price, and the outlook for when the US will begin to raise rates,” Lowcock continued. “With these concerns having receded, for the time being at least, investors are becoming more confident. It is difficult to predict where the market will be by the end of 2015 let alone beyond that, but we could expect to see multiple new record highs this year. However investors should not get carried away with rising markets and instead remain focused on valuations.”
