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week spooked markets by suggesting that the central bank’s market-boosting quantitative easing (QE) programme could be withdrawn earlier than expected.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.
“There is no detection of any kind of euphoric bull market attitude, no irrational exuberance and people are dismissive of seeing the market at these levels and that’s healthy from a long term investor’s standpoint.
“It suggests the market will still climb the wall of worry and plenty of people are still sitting on the sidelines, which supports the market going higher.”
The manager predicted the FTSE 100 would end the year on 7,000 and said this call was supported by the fact this market cycle was different to those when the market was at previous highs.
“We are at the early stages of quite a long cycle and past cycles have ended because of excesses either linked to inflation or leverage and we are a very long way from those traditional excesses.”
However, voices of caution are present in the industry.
Julian Chillingworth, chief investment officer at Rathbone Unit Trust Management, said the FTSE 100 was likely to end the year lower because he believes the US Fed will begin to put the brakes on its QE programme.
He said: “You could well see, in the next few months as they rein in purchases, a fair bit of volatility, and I feel pretty relaxed about a prediction of 6,500 for the FTSE 100 at the end of the year, though it could be a bit lower.”
Playing FTSE - Managers’ predictions on where the FTSE 100 will end 2013
7,200 - Justin Urquhart-Stewart, Seven Investment Management
7,000 - Stephen Bailey, Liontrust
7,000 - Max King, Investec Asset Management
7,000 - Chris Rodgers Four Capital
7,000 - Neil Veitch, SVM Asset Management
6,500 - Julian Chillingworth, Rathbone Unit Trust Management
