FTSE 100 ends 2016 on record high

FTSE 100 ends 2016 on record high

The 100 biggest companies in Britain ended last year at an all-time high after the so-called Santa Rally continued on into the New Year.

The FTSE 100 index closed 2016 at 7,142, largely driven by the overseas earnings of its constituent companies being boosted by the weak sterling.

These big multinational players were also helped by low interest rates and fiscal loosening in the USA and the UK.

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Since trading opened today (3 January), the FTSE 100 has continued to climb and hit 7,182 points at 1pm.

Richard Stone, chief executive of the Share Centre, said investors had good reason to be optimistic going into 2017, despite the impact of unexpected political events and volatile markets. 

He said: "The stock market has put those political shocks behind it and ended the year with confidence in reaching new all-time highs. 

"This is a sign of confidence in the future prospects of the companies which make up the index, their ability to grow profits and deliver dividends and capital returns to investors – at least relative to other asset or investment types."

A number of fund managers, including the likes of Richard Buxton and Robin Geffen, have suggested 2016 was a turning point in the investment markets as the larger international companies started to see healthy returns.

Investors with exposure to the FTSE 100, perhaps through an index or tracker fund, would have seen their investment rise 14.4 per cent last year, while dividend income added a further 3 per cent. 

Mr Stone said: "A braver investor who bought into the market at its low point in February 2016 would have seen a return of nearly 30 per cent with any dividend income on top of that."

He added that 2016 was a welcome relief for these companies after suffering two years of losses, claiming history would suggest that the break in two years of losses means 2017 could be another positive year for the market. 

But he also said some theories suggest the stock market goes in 15 to 20 year cycles, with 20-years of gains, followed by 20 years of stagnation or consolidation, followed by 20 years of gains.

“The market posted a strong performance through to the late 1990s and the dotcom boom,” he said, pointing out the levels reached then have only just been reached again now. 

“Based on this broader cyclical theory, this could mean we are beginning to enter the next period of stock market appreciation."

Ben Yearsley, investment director at the Wealth Club, said sterling's 19.4 per cent fall against the US dollar helped push the FTSE 100 to record levels.

“Many will forget that going into 2016 there was a high degree of volatility culminating in market lows in February with uncertainty surrounding the ability of many mining and commodity companies to service their debt. 

“But roll forward to the end of 2016, and these same companies topped the performance charts. The sharp collapse in sterling after the Brexit referendum in June had a huge impact on returns.”