Equities  

‘Investors must not get carried away by FTSE rise’

‘Investors must not get carried away by FTSE rise’

Investors have been warned not to get carried away by the FTSE 100 passing 7,000 last week.

Matthew Hoggarth, investment analyst at Thesis Asset Management, said there were plenty of events that could upset equity markets during 2015, including US interest rate hikes, Greek debt negotiations and bank reconstruction in Austria, which could push the benchmark down again.

He said: “The first time the FTSE 100 closed above 6,000 was on April Fools’ Day 1998.

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“Six months later it fell to a low of under 4,700 after Russia’s currency crisis and default, and the failure of the hedge fund Long Term Capital Management caused investors to flee for safety.”

On Friday 20 March, the benchmark UK large-cap equity index rose 0.7 per cent to 7,008.78 and increased up to 7,027.33.

The rise was led by Irish cement firm CRH, but other risers also included mining firms and oil and gas stocks.

It closed at 7,022.51 on 20 March, the first time in its history that it has breached the 7,000 mark.

The FTSE 100’s previous record was set on Thursday when it closed at 6,962, marginally higher than the previous record of 6,961, set on 5 March.

Nick Dixon, investment director at Aegon UK, said the gilts price/earnings ratio of 65.9 versus 15.5 for the FTSE 100 suggests the index offers good relative value.

He said: “Some may question the market’s sustainability at this level, but we see plenty of room for investors to make further gains.”

However, many believe the latest increase in the market has little to do with UK matters but is a result of the recent guidance from the US Federal Reserve that there will be no tightening of its monetary policy, against all expectations.

Tom Elliott, international investment strategist at international firm deVere Group, said: “We are nervous of buying into a rally that is less about improved corporate earnings forecasts in the UK, and more about delving into the tea leaves of statements from the US Federal Reserve.”

Total Return figures on £100 over 10 years
FTSE 100£204.82
IA UK All Companies£207.72
FTSE All Share£216.50
Source: Tilney Bestinvest

Adviser view

Jason Hollands, managing director for business development and communications at Tilney Bestinvest, said: “It is important to reiterate the level of the FTSE 100 is not in itself a particularly useful way of measuring whether equities are cheap or expensive.

“We estimate that once adjusted for inflation, as measured by CPI, the FTSE 100 would need to be at around 9,500 to be comparable with its 1999 peak. That’s a long way off where we are now.”