The UK economy is improving and the latest reading of an annualised 0.8 per cent in the third quarter of this year makes it almost the fastest growing in the G7.
It is therefore unsurprising many think the UK’s index of 100 leading shares will likely breach 7,000 with some expecting it to hit as high as 7,400.
However, most UK equity fund managers were wide of the mark in estimating where the FTSE 100 would end 2013, having predicted it would finish up at 7,000 points.
Managers from Liontrust, Investec Asset Management, Four Capital and SVM Asset Management predicted in May that the FTSE 100 would hit 7,000 with some even more bullish - including Seven Investment Management’s Justin Urquhart Stewart - expecting it to go above this level to as high as 7,200.
At that time of their predictions, the index sat at 6,782 - just below its highest point for 2013 of 6,840, a level it reached on May 22.
But Rathbone Unit Trust Management’s chief investment officer Julian Chillingworth was more cautious than peers and predicted the FTSE 100 would end the year at 6,500.
With the index currently at 6,445, the CIO looks set to be closest to the mark unless a late and significant year-end surge takes place in stockmarkets or things go the other way.
Since the May high, the index has traded broadly sideways, with the exception being in June when the bourse hit 6,029 following the fallout from the Federal Reserve’s hints that it would reduce the size of its support for the economy.
At the start of January this year, several global managers said the fact the FTSE 100 hit a four-year high was not a sell signal for UK equities.
The FTSE 100 index traded at 6,110 on Jan 11 – levels last seen in May 2008, four months before the collapse of Lehman Brothers.
Fidelity’s Jeremy Podger, Threadneedle’s William Davies and M&G Investments’ Steven Andrew all said they would maintain their weightings to UK equities.
The focus now though has turned to 2014.
Fidelity’s equities chief investment officer Dominic Rossi has said in his 2014 outlook he thinks the strength of the UK recovery and GDP in Britain could “surprise investors” and that the FTSE could be driven higher next year.
Mr Rossi said the capital situation in the banking system had “recoevered nicely” and even though there were issues for the economy such as high energy costs, there was still “cause to be fairly optimistic”.
“The FTSE 100 has good prospects of breaking the 7,000 point barrier,” he said.
“In particular, the exchange rate of the pound sterling could easily fall to $1.50. This alone would give the FTSE 100 a strong boost.
Elsewhere, the Association for Investment Companies has said a survey showed 58 per cent of managers thought the FTSE could break 7,000 by the end of 2014 - which is called a “dramatic change” from last year when no managers excpected the index to break that level.
A total of 32 per cent expect it to end the year between 6,500 and 7,000 while only 5 per cent think 6,000-6,500.
“So it is perhaps not surprising to see that the UK has come in from the cold this year and is the second most widely tipped sector to outperform next year among 19 per cent of managers, compared to last year, when no managers expected the UK to outperform,” the AIC said.
Guy Foster, head of portfolio strategy at discretionary manager Brewin Dolphin, has said he expects the FTSE 100 to reach 7,400.
“We see equities becoming the asset class du jour for investors,” he said.
“This is not built on a universal cyclical recovery, but rather will be played out by recognition of the deflationary or disinflationary expansion which we have been talking about all year.
“Policymakers and investors will come to recognise that extreme measures are required to combat deflation, and that in such circumstances the prospects for equities are extremely robust.”
