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By Jenna Voigt | Published Aug 20, 2012

Strategists predict a FTSE surge - for now

Strategists have tipped the FTSE 100 to break the 6,000 points barrier by the end of the year, after a surprise market rally drove the index over 5,800 in spite of macroeconomic fears.

The index of the UK’s biggest shares rallied by more than 11 per cent from its trough at 5,260.2 points on June 1 to trade at 5,845 points on Friday (August 17).

Market experts said the short-term gains would continue to flow, but they warned that key macroeconomic risks lie ahead.

Mike Lenhoff, chief strategist at London-based wealth manager Brewin Dolphin, said the “unexpectedly buoyant” markets were a result of investors focusing on action from central banks rather than negative economic news and disappointing company results.

He said as long as central banks, particularly the European Central Bank (ECB) delivered on their commitment to growth, markets would “move ahead considerably”.

“If that is borne out when the ECB next meets in September, these markets are really going to move,” he said.

“If I had a bet on it, I’d say it is definitely upwards and 6,000 [for the FTSE] is definitely within reach.”

But he warned if a decision from the German Constitutional Court over the legality of the eurozone bailout funds (due on September 12) was not favourable, it would derail the equity rally.

Additionally, the strategist said the potential fiscal cliff in the US at the end of the year could “really unsettle markets”.

He warned if there was a cliff the US would likely be plunged back into recession – although scope remains for the Federal Reserve to ease monetary policy this autumn.

Frances Hudson, global thematic strategist at Standard Life Investments, said the economic situation appeared to be improving in the UK and that the FTSE could climb higher before the end of the year.

But she too warned several key dates loomed in September that could derail any market rally.

“If anything is going to disrupt the markets that’s going to be the time,” she said.

She pointed out the Dutch general election, the German court ruling on bailout packages and a decision on aid for Greece could “cause a wobble” in Europe.

Uncertainty over the future of the single currency led Finland to prepare for a euro breakup last week, in spite of assurances from German chancellor Angela Merkel that Germany was “in line” with the ECB’s approach to defending the euro.

Overall, Robert Jukes, global strategist at Collins Stewart Wealth Management, said the recent market rally “felt like the calm before the storm”.

“I see very little prospect of the market being able to do very much more than that,” he said. “[The crisis] requires political solutions and that’s not something the central bank can fix on its own.”

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