The index rose to 6,877 points today in early morning trading, its highest level since the final day of trading in 1999, the previous high point, although has since fallen back. For the past 10 years - at least - there has a psychological barrier against the FTSE 100 passing through the 7,000 points barrier, Becket says.
“However, it looks as if that will be happening at some point this year,” he said.
“The FTSE 100 has been one of the leading indices so far this year globally in Pound terms and there is every reason to believe that as a diversified index with not particularly stretched valuations that can continue.”
“Broadly, markets are benefiting from an improvement in investor sentiment whether it is justified or not.”
“The market leadership keeps on changing baton from one sector to another. Last week it was the healthcare sector that was very in vogue, before then it was the oil sector now it is the mining sector.”
The FTSE 100 has outperformed the TOPIX, S&P 500, rising 2.97 per cent since the begging of 2014.
The S&P 500 rose 1.25 per cent whilst the TOPIX fell 9.29 per cent, over the same period.
Performance of indices in 2014
Source: FE Analytics
Despite Becket’s positive outlook he is expecting markets to re-rate downwards, temporarily.
“We have been expecting a bigger market correction in this last couple of months perhaps triggered by a geological event or by investors more concerned about high corporate equities valuations unjustified by corporate profits.”
However he believes the recent spate of M&A activity enjoyed in developed markets will underpin the FTSE100 and provide support in the longer term in the event of correction.
“Part of the FTSE 100’S ability to reach its recent high has been triggered by the Pfizer’ bid for AstraZeneca and the knock-on positive effects it has had on the heavyweight healthcare sector.”
“That sector will continue to benefit from ongoing M&A activity which will be an ongoing force behind the FTSE 100 breaking through 7,000 this year.”
Since news broke of the American pharmaceutical giant’s – so far unsuccessful - bid for its UK rival its share price has risen 21.7 per cent, helping the FTSE 100 to rise 3.73 per cent, over the same period.
Performance of stock vs index in 2014
Source: FE Analytics
James McDaid, investment manager at GAM, agrees that the FTSE 100 appears headed for an all-time high later this year, however he says in the longer term the market is less certain.
“With the FTSE 100 just whiskers away from previous highs, and no obvious major news to knock it off course from its short term trajectory, it could very well reach new levels,” he said.
Ben Willis, head of research at Whitechurch is taking a much more bearish view on the index’s recent gains and is building up cash weightings across his portfolios in anticipation of a market correction.
“Today’s 14-year high is not a buying opportunity as things are generally looking relatively expensive and I would rather be sitting on some cash to pick things up at cheap prices when the market falls.”
He thinks investors are becoming more risk averse, leading to them moving money away from equities.
“Investors are holding positions but there is not going to be that wall of new money coming through in the near term to buy because on a relative basis there is not a great deal looking attractive from a value basis.”
“I don’t think there is much risk taking out there [from investors]. Because we have had a few years of the market considerably re-rating on price I think people are getting a bit nervous.”
“We will need to see earnings and sales growth continuing to improve from the underlying companies as well as the overall economic outlook to underpin that and you will see the next leg -up on markets.”
“However at the moment it is looking relatively fragile. We are getting good numbers through in the UK but that could affect companies with overseas earnings.”
“This has led us to raise our cash holding because we think the market is looking a bit toppy and we want to buy back in at cheaper rates after markets fall.”
Richard Buxton, manager of the £1.26bn Old Mutual UK Alpha fund, also told Trustnet in March that he anticipated the FTSE 100 to hit past the 7,000 points barrier later this year.
