Brexit woes may have pushed the FTSE 100 down in the days immediately following the vote to leave the European Union, but its bounce-back in the weeks since has given advisers confidence.
With the FTSE 100 closing up at 6,730.48 on Friday (22 July), compared with its wobble on 24 June, when it closed 3.2 per cent down, initial worries of a market slowdown do not yet seem to have materialised.
According to David Jane, manager of boutique Miton’s multi-asset fund range, part of the confidence in the UK stock market could be down to positive noises coming from the Bank of England.
Already on 30 June, governor Mark Carney assuaged investors’ fears by saying “the UK was ready for this” and promising to inject more liquidity should the need arise, in the form of £250bn worth of quantitative easing.
Mr Jane also suggested this could help to boost the outlook for UK credit markets.
He said: “The UK central bank is indicating an intention to embark on a corporate bond buying programme, similar to Europe’s, which will inevitably lead to attractive returns for bond investors keeping yields low and driving them lower.
“This is seen as a means of offsetting any economic weakness and improving confidence post the Brexit vote.”
On the FTSE, more defensive sectors have led the way, showing safety and yield still come top of the list when stock-picking Chris BeauchampChris Beauchamp, senior market analyst at online broker IG, believes the FTSE 100 will continue to do well even over a traditionally quiet August.
“The conditions look good for further gains as the summer continues, barring any sudden crisis over Italian banks or a more public fallout between the EU and the new government in the UK,” he commented.
However, there are particular sectors of the leading blue-chip index which are holding up particularly well, perhaps because investors have been wanting to remain invested in the stock market, but in more defensive sectors such as tobacco, healthcare and some domestic consumer retailers.
Mr Beauchamp said: “On the FTSE, more defensive sectors have led the way, showing safety and yield still come top of the list when stock-picking. For the rally to last into the autumn, more risk-sensitive sectors like mining and energy need to take over.”
Advisers are also showing more confidence in the index’s ability to climb higher this year, despite ongoing negotiations with the European Union.
In a poll conducted on the FTAdviser Advantage website, one-third of financial advisers believed the FTSE 100 could even break through the 7,000 mark this year - a high not seen since May 2015.
Some 20 per cent of advisers polled thought it would continue to rise, but remain within a tight range, hovering at 6,800 to 6,900.
While 22 thought it would stay the same, only 29 per cent believed the third-quarter earnings season could bring some unpleasant surprises, knocking the index back down.
Clem Chambers, chief executive of global stocks and shares website ADVFN, falls into the camp which believes the FTSE 100 could hit 7,000.
He said: “The Dow has made a strong technical breakout upwards towards 20,000. This would drag the FTSE to 7,000 easily.
“If the Bank of England continues to intervene to soften the Brexit blow the liquidity will drive the FTSE above 7,000.
“Bank of England liquidity injections and the Dow heading for 20,000 make 7,000 on the FTSE an easy level to break.”
However, Mr Chambers said there was a possibility that a downside created by Brexit and the possibility of a Donald Trump victory in the US “could break the markets’ bull run without warning”.
simoney.kyriakou@ft.com
Find out more
For more analysis on the UK equity market post-Brexit, visit FTAdviser Advantage and on Twitter at @FTA_Advantage
