London’s FTSE 100 index climbed to an all-time high on Friday, capping a strong start to the year and underlining how the UK has largely avoided the heavy declines that hit other major stock markets in 2022.
The FTSE added 1.1 per cent on the day to trade at 7906, eclipsing its previous peak in May 2018. The index, which is dominated by multinational companies earning the bulk of their revenues outside the UK, has climbed 6.1 per cent so far in 2023 as global equity markets are buoyed by cooling global inflation and hopes that central banks will slow the pace of interest rate rises.
After weeks of flirting with its record high, hints from the Bank of England on Thursday that it may be close to ending its cycle of interest rate rises helped to push it over the line.
The FTSE 100’s rise to a fresh high this week follows years of underperformance relative to other equity markets, particularly the US, held back by an absence of the kind of big technology companies that powered more than a decade of stellar gains for Wall Street.
“I’m surprised by how strong markets are in general right now, but I get it with the UK,” said Neil Birrell, chief investment officer at Premier Miton. “There’s genuine value in the [FTSE 100], and it’s cheap.”
The long-term performance of the UK stock market remains unimpressive. The FTSE is up just 14 per cent since its dotcom era high in 1999. Since then, the value the S&P 500 has risen by more than two-and-a-half times.
However, the oil companies and banks that dominate the FTSE helped the UK market dodge the worst of 2022’s global equity rout, which saw the high-flying US tech sector battered by rising interest rates. The FTSE ended a dire 2022 for equity markets around the world as the best-performing developed market index in local currency terms, with its nearly 1 per cent gain in stark contrast to an almost 20 per cent decline for the S&P 500.
The UK has in the past been dismissed for being too exposed to oil and mining groups, banks, insurers, and utilities and consumer staples, and for not having enough high-revenue-growth technology stocks to rival the likes of Apple, Amazon and Alphabet in the US.
“But these vices look a little more like virtues” now that inflation and rising rates are squeezing tech valuations and pushing investors towards “potential stores of value”, said Russ Mould, investment director at AJ Bell.
Shell, the Anglo-Dutch oil major that is the second-biggest company on the London Stock Exchange, gained 43 per cent last year, while HSBC, the banking heavyweight, gained 15 per cent as higher interest rates boosted its profits.
Sterling’s devaluation against the euro and the dollar since Brexit has helped, too, lifting FTSE 100 companies in sectors such as oil production and basic materials that book the bulk of their revenues overseas.
Companies with larger imported costs, as well as those more exposed to local demand, have fared less well. The mid-cap FTSE 250, which contains more interest rate-sensitive stocks and better reflects the state of the British economy, last year tumbled by about a fifth.