EquitiesMay 28 2013

FTSE 100 set to surge past 7,000 barrier, say experts

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ByMatthew Jeynes

The FTSE 100 index of UK equities is set to surge through the 7,000-point barrier by the end of the year, according to an increasing consensus in the investment industry.

Most experts canvassed by Investment Adviser last week predicted the FTSE would close slightly higher than its all-time high of 6,950.6 points, reached in 1999, by the end of the year and some said it would go much higher still.

The predictions were made in spite of the fact that US Federal Reserve chairman Ben Bernanke last week spooked markets by suggesting that the central bank’s market-boosting quantitative easing (QE) programme could be withdrawn earlier than expected.

Downbeat economic data from China combined with Mr Bernanke’s remarks to send global markets into retrenchment, with the FTSE 100 recording its largest single-day fall in a year on Thursday after breaking through highs not seen since 2000 earlier in the week.

The macroeconomic experts said markets would continue to press ahead.

Justin Urquhart-Stewart, co-founder of Seven Investment Management, predicted the FTSE 100 would close 2013 at 7,200 points, as ongoing corporate earnings improvements remain in the driving seat.

He said the markets had been “looking for any excuse for a pullback” following the stellar gains in the first half of last week, but there are “a lot of people who have missed out on this rally” who would be looking to join in.

He added that central banks would be unlikely to unwind their monetary easing policies too early given the procarious nature of the economic recovery in the developed world.

Max King, co-manager of the Investec Managed Growth fund, said markets had “caught up with fair value”, but that he expected earnings growth to advance the index up to 7,000 by the end of the year driven by cyclical stocks in the energy, tech and industrials sectors.

Liontrust Macro fund co-manager Stephen Bailey said QE “tapering” would occur if there was an economic recovery, which would be supportive for markets anyway.

Mr Bailey said the market would continue to shrug off bad news and surpass 7,000 by the end of the year.

In 1999 the dot-com boom sent the FTSE 100 index to trading at a price-to-earnings multiple of 24x, compared to just 12x last week - suggesting the market is relatively ‘cheaper’ this time around.

Chris Rodgers, founder and senior UK equity manager at Four Capital, said the broader FTSE All-Share index had already passed an all-time high milestone and the FTSE 100 looked set to follow suit.

“It has been a good market because valuations are not stretched and while it is a little overbought it is not excessive,” he said.