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Where will the FTSE end up in 2016?

24 December 2015

Predicting where the main UK equity market index will be in a year’s time is a nigh on impossible task but in this article a host of experts share their thoughts on where the FTSE 100 could be in 12 months’ time.

By Daniel Lanyon,

Senior Reporter, FE Trustnet

The FTSE 100 is going through one of its worst years since the financial crisis unfolded in 2008, with the main UK equity index down 3.87 per cent over the year to 22 December. 

Yesterday’s session saw a big rally (which wasn’t captured in our data at the time of writing), so exactly how disappointing this year will ultimately be is yet to be decided.

Performance of index in 2015

Source: FE Analytics

That’s not to say there wasn’t some bullishness from investors in the UK equity market in 2015 with the year notable for the FTSE 100 charging ahead to reach an all-time high of 7,104 points.

However, a host of interconnected issues surrounding weaker Chinese growth, the continued commodities rout and a low oil price make bullishness a scarcer resource today than this time last year.

Of course, predicting where the UK equity market will be this time next year is fraught with complication with these and there are many other headwinds hanging over the next 12 months. But with that said, in this article we hear from the experts willing to give their best guess.

 

OMGI’s Richard Buxton – 7,104+

First up Buxton (pictured), chief executive of Old Mutual Global Investors and manager of the £2.3bn Old Mutual UK Alpha fund, strikes a bullish note by saying the FTSE 100 could surpass the record high that it reached back in April.

“I'm broadly optimistic with some further profit growth and weaker sterling we could pick up beyond the highs we hit this year – 7,104,” he said.

“On the consumer and service side we are still in a lower growth environment. But there is sufficient momentum within the US, UK and Europe that we will be okay.”

However, Buxton says the outlook is more uncertain than it has been for several years with the direction of travel harder to call.

“The outlook is more than unusually murky. A lot of it rests on the degree to which the current weakness in all the industrial purchasing managers’ indices is a one-off adjustment to a much lower level of demand from China,” he added.

“There could also be a moment in the first half of 2016 when the market worries that the Federal Reserve is making a policy mistake by raising rates and there is bit of a panic. But the future is always unclear but it really, really is – materially – uncertain at the moment.”

 


 

Fidelity’s Nick Peters – 6,100 to 6,500

Next Peters, portfolio manager in Fidelity’s multi-asset team, keeps an optimistic tone but is more cautious than Buxton, believing the index is likely to see some modest recovery or be flattish.

 “Overall, one can paint a relatively supportive picture. Wage growth is now outstripping inflation and is likely to continue doing so, given low levels of unemployment,” he said.

“This should help to support consumer demand, though this is admittedly more important for the more domestically focused FTSE 250. While sterling strength is a headwind for the economy, stronger growth in the eurozone (the UK’s biggest export market) could benefit the country.”

Performance of sterling against the dollar in 2015

Source: FE Analytics

He adds a key determinant will be the behaviour of commodities due to the high presence of stocks geared to this market in the FTSE 100 index.

“With the FTSE 100 having a high exposure [20 per cent] to energy and commodity stocks, commodity prices will clearly have an important impact. Further declines – unlikely on balance – will clearly be a big drag on performance.”

“However, should we see an appreciation in commodity prices, then the energy and commodity sectors could be big winners.”

 

Killik & Co research team - 6,750

The research team at wealth manager Killik & Co are marginally more bullish, expecting the index to rise back to where it was around the middle of 2015 before markets sharply began to correct.

For 2016, we expect equities to show positive performance as we see a moderate pick-up in global growth, especially in Europe and Japan,” the team said.

“In the UK, we expect earnings growth of around 6 per cent, although, like last year, it may be highly dependent on oil & gas and basic resources earnings, given the high weighting of the FTSE to these sectors. Our year end FTSE 100 forecast would leave the market on a forward PE of 16x and a net prospective yield of 4.0 per cent.”

 


 

The Share Centre’s Helal Miah – 6,480

Miah (pictured), investment research analyst at The Share Centre, says the China-induced panic in global markets and sterling’s strength were the primary reasons for 2015’s sell off in the FTSE 100 and he expects both of these trends to continue in 2016. However, he adds that the index should see some recovery.

“The UK and US economies will be the bright spots and as both countries move towards withdrawing money stimulus and raising interest rates, they will in our view, further strengthen their respective currencies,” he said.

“Therefore, overseas earnings of the multinationals will still be dampened. Not only that, but as has already been the case in 2015, more companies will be reporting difficulties in exporting products due to their currency strength.”

 
Hargreaves Lansdown’s Mark Dampier - ???????

Last up, Hargreaves Lansdown’s head of research concedes that it is too hard to predict movements in markets with any degree of accuracy.

"I have no idea, and neither do any of the experts. I stopped trying to forecast the FTSE a few years ago because the answer is that nobody knows the answer. On a one-year view, who has a clue?" Dampier said.

“Having said that, I don’t think UK interest rates will go up next year and it is quite possible that US rates will come back down again, but I may be spectacularly wrong about that!"

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