Although concerns over the Greek debt negotiations and political uncertainty have been persistent, it has been a momentous year for the UK’s blue chip index as it surpassed its previous record high of 6,930 last month – a level not seen since the height of the infamous dotcom bubble of the late 1990s.
Price performance and total return of index since last record high
Source: FE Analytics
When the record was broken last month, a small number of experts predicted that the FTSE 100 would breach the 7,000 barrier at some stage in 2015, given that the market is currently fairly valued and playing catch-up as many global indices already hit new peaks a few months ago.
Nevertheless, with a hotly contested general election just months away, most analysts suggested that the chances of the FTSE 100 making further gains over the shorter term were unlikely.
However, investors have not had to wait long at all as, after starting the week at 6,700, the FTSE 100 now stands at 7,009 at the time of writing, taking the index’s returns to more than 7 per cent so far in 2015.
But what can investors expect from the UK equity market next? And, more importantly, is this a time to celebrate or head for cover? Here we round up the opinions of leading industry experts.
Chase de Vere – “Treat this as a warning sign, not a reason to buy”
Patrick Connolly (pictured), head of communications at Chase de Vere, said: “I don’t think it really means that much.”
“Obviously the FTSE number doesn’t take dividends into account, so the real picture for investors is entirely different. I think rather than celebrate, it’s probably a time for investors to take stock and to have a look at their asset allocation and see whether their equity weightings have gone up.”
“If they’re looking at new money, I would treat reaching the record high as a warning sign rather than an invitation to buy.”
Chelsea Financial – “The UK is still a decent place for long-term investors”
Darius McDermott, managing director at Chelsea Financial, said: “I think it is an overdue psychological barrier for the market.”
“I was working on 31 December 1999 when it almost got there in the height of the tech boom. But those were different times, the market was fuelled by different things: the P/E ratio was north of 30 whereas as now it’s 15/16.
“Around 2006/7, the FTSE nearly touched the all-time high; it’s nearly touched it a number of times in the last couple of years. As soon as the 7,000 mark came in sight, something happened and down it went again.”
“So I do think it’s an important psychological mark to have broken through. I don’t think equities are ridiculously expensive and it’s still a decent place for long-term investors. “
Fidelity Personal Investing – “No one should be celebrating”
Tom Stevenson, investment director at Fidelity Personal Investing, said: “The FTSE 100 finally cracks through the 7,000 barrier, but no one should be celebrating."
“It’s been nearly 17 years since it first broke 6,000 on 1 April 1998 - a long wait for round-number watchers. The performance of the FTSE 100 is even more disappointing when you consider that the growth of the UK market has progressively slowed since its launch in 1984."
“While it took just three years to double the index between 1984 and 1987, it took nearly a decade for it to double again, between 1987 and 1996.”
“Even if the market races ahead from 7,000 to 8,000 it will have taken the best part of 20 years for it to double for a third time.”
Wealth Horizon – “This record presents a conundrum for investors”
Chris Williams, chief executive officer at Wealth Horizon, said: “Today the FTSE 100 finally breached 7,000, having already set numerous record highs in 2015."
“While this is great news for investors in UK equities, it presents a conundrum for what comes next. Certainly, no one can say equities look like a bargain at these levels, so the key for investors is to diversify their exposure and make sure they are not taking too much risk on any one market.”
Tilney Bestinvest – “It could still go higher”
Jason Hollands (pictured), managing director of business development and communications at Tilney Bestinvest, said: “The reality is that the latest spike in the market has little to do with domestic factors.”
“It is more a result of the mighty US Federal Reserve’s latest guidance this week, which has reduced expectations of a tightening of US monetary policy. The good times of easy money are set to roll-on for a little longer, which has provided a relief to markets.”
“It’s important to once again reiterate that the level of the FTSE 100 is not in itself a particularly useful way of measuring whether equities are cheap or expensive. There are numerous ways to try and assess the value of shares, but the most common one is a measure called the price/earnings (P/E) ratio.”
“This measures a share's price relative to the annual profit earned per share. In 1999 at the height of the dotcom bubble, the FTSE 100 was on a P/E of 27 times earnings, in large part due to very high ratings of technology and telecom companies, whereas now it is just below 16 times earnings.”
“Current UK valuations are a little higher than the long term average but they aren’t astronomical either and certainly below those of US equities, where the S&P 500 index is on 20-times earnings. When drawing comparisons between the UK stock market now and at the peak of the dotcom bubble in 1999, it is also vital to factor in the impact of inflation over the last 15 years.”
“We estimate that once adjusted for inflation, as measured by the UK consumer price index, the FTSE 100 index would currently need to be at around 9,500 points to be comparable with its 1999 peak of 6,930 points.”
“That’s a long way off where we are now.”