News that the FTSE 100 index has finally, after an astonishing 15 years, managed to recover to the all-time highs before the tech bubble burst was inevitably dismissed by commentators.
They gathered to point out the reasons why the fact the flagship UK equity index finally went above the 6,950 point level, last seen in trading on December 30 1999, can be seen as meaningless.
There is the fact that inflation has eaten away at the value of money to a great extent in the past 15 years, meaning the index of blue-chip UK equities is in fact far behind what it should be today.
According to calculations from Whitechurch Securities, the index would now have to reach 10,679 points to compensate for all the inflation that has taken place since the previous peak.
It is also indeed true that the index’s value is merely a representation of share-price moves in the UK’s biggest companies and does not include all the dividends paid out by the companies over the years.
If you had reinvested all your dividends back into the market over that time, you would have gained 67 per cent, still an admittedly lacklustre return.
But there is something uniquely British about the way we immediately rush to put a downer on positive news: ‘We’re holding the Olympics in London? What will that cost?’
This time I say, ‘Bah humbug!’
The number 6,950 has haunted the UK stockmarket for a painfully long time.
It has become symbolic for what some see as the failure of the market to do its job of rewarding investment in the same way as, say, the emerging markets now do.
The FTSE 100’s stagnation has been seen as a corollary to a broader feeling that the British economy, and those of other old-industrialised economies, has in some way petered out.
To be sure, the past six years of severe financial crisis have been gruelling. It took until last July for the UK’s economic output to return to its pre-crisis peak.
There is something uniquely British about the way we immediately rush to put a downer on positive news.However, the UK’s biggest companies certainly have grown in the past decade and a half. As many pointed out last week, while the FTSE 100 index has only just made up the ground it lost 15 years ago, its constituents are today earning twice as much as they were then.
The FTSE 100 is of course an index of very global companies, most with little focus on the UK as a source of revenues. But it’s our market, and markets and investment are of course all about sentiment. Asset prices rise when people believe they will rise.
We’ve finally kicked the FTSE monkey off our nation’s back and last year our economy grew faster than all others in the G7.
I say let’s just enjoy the moment and focus on keeping the momentum going.
John Kenchington is editor of Investment Adviser
