Stock Index FTSE 100 surpasses 9,000. Will it sustain at this level?
FTSE 100 Surpasses 9,000: A Closer Look
The FTSE 100, an index of the UK's largest 100 companies, has made a significant milestone by reaching and surpassing 9,000 for the first time on July 21, 2021. This achievement is the result of a combination of strong corporate developments and sector performance that boosted market confidence.
Jemma Slingo, a pensions and investment specialist at Fidelity International, points out that the FTSE 100 is relatively cheap compared to international counterparts and offers relatively high dividend yields. More than 80% of the revenues from the FTSE 100's component businesses are derived from abroad, making it a key indicator of the health of the UK economy.
Centrica's agreement to take a 15% equity stake in the Sizewell C nuclear project, committing £1.3 billion alongside the UK government's stake, has been a significant contributing factor. This endorsement of nuclear energy aligns with the UK’s net-zero goals, generating positive investor sentiment. AstraZeneca’s announcement of a $50 billion investment in the United States by 2030, focusing on manufacturing and R&D, including a new facility in Virginia, also reflects confidence in long-term growth prospects.
Broader strength in UK sectors such as aerospace, defence, and banks has also supported the rise. Aerospace and defence companies have benefited from increased UK defence spending, while banks have gained from higher interest rates. The rise was further aided by mining stocks and a relatively positive outlook on UK trade relations, notably being the first country to agree a trade deal with the US, reducing tariffs.
Meanwhile, Elliott Management's pressure on BP’s new chairman introduced governance attention to a major energy company, though this was part of a wider context rather than a direct price driver. Interestingly, China’s hydropower projects were not mentioned as a factor in the FTSE 100 surpassing 9,000 in the available sources, suggesting its influence was not a key driver in this specific UK market event.
However, reaching the 9,000 milestone is significant, but maintaining these levels could prove challenging due to falling investor confidence in the UK, as indicated by a recent survey. The UK GDP has slowed, business costs are mounting, and policy reversals from the Labour party have dented its fiscal credibility, according to Kate Marshall, lead investment analyst at Hargreaves Lansdown. The Hargreaves Lansdown Investor Confidence Index indicated a 26% downturn in investors' confidence in UK economic growth during July.
Despite these challenges, Chris Beauchamp, chief market analyst at IG, commented that the achievement of the FTSE 100 closing above 9,000 demonstrates the resilience of UK equities despite ongoing economic challenges and political uncertainty. Some of the best funds for beginner investors are trackers that follow the FTSE 100 index, offering a diverse and stable investment opportunity.
Notable UK top stocks included in the FTSE 100 are Rolls-Royce, BP, and Glencore. The first close above 9,000 was largely due to solid growth across various sectors, particularly the mining industry, driven by rising iron ore prices. The stocks of miners like Anglo American and Rio Tinto have also been boosted by the rise in commodity prices and good news from China.
In conclusion, strategic investments in UK energy and pharmaceutical sectors, strong performance in defense and banking, and supportive trade developments collectively drove the FTSE 100 above the 9,000 milestone. However, maintaining these levels could be challenging due to the current economic and political climate in the UK.
The FTSE 100's surpassing of 9,000 is partly due to Jemma Slingo's observation of its relatively cheap cost compared to international counterparts and high dividend yields, making it an attractive option for investors. Strategic investments in the UK's energy and pharmaceutical sectors, such as AstraZeneca's $50 billion investment in the US, have also contributed to this achievement.
However, maintaining the FTSE 100's levels could prove challenging due to falling investor confidence in the UK, as indicated by a recent survey. This is partly because of the UK GDP slowing down, business costs mounting, and policy reversals from the Labour party denting its fiscal credibility.
