Five reasons the FTSE could break its record

We’ve waited for fifteen years, but we’re almost there.

As I write the FTSE 100 is at 6,878 – within touching distance of its all-time record high.

The record was set back in December 1999, when investors were gripped by tech hysteria. Money was being pumped into the stock markets by those desperate to cash in on new internet-based companies.

You might know what happened next: within a few months that bubble had popped, and the FTSE had dropped 900 points from its high of 6,930.

Well, it’s been a long wait, but the FTSE 100 has finally made its move back up to that higher ground. And today, a 1% move would break the record.

So what’s special about May 2014?  At least the last record was set on Millennium Eve. Why does the market think this is one of the best times ever for British companies?

What’s behind this?

I think there are five main factors behind the rise.

1. Markets aren’t worried about Russia any more

That’s much as I expected. Geopolitical jitters have a habit of fading away; at least, they do in the markets.  And we all know that central bank policies of loose money are helping the markets plough on regardless.

2. Emerging markets are in the driving seat

More than Russia, a big driver is the emerging markets. Yes, they’ve been out of focus recently, but the emerging titans just refuse to be ignored. And as far as our big listed companies go, there’s most definitely a benefit.

Why? Well, global energy and resource stocks make up a bit part of the FTSE 100. Then there are international pharmaceuticals (very much in the news right now) and global behemoths like Diageo. And of course let’s not forget the big international banks like HSBC and Standard Chartered. These guys have massive exposure to the emerging markets.

3. China is adding huge demand

Next, the thing we have to bear in mind is that China is adding huge demand to global markets. It’s in the middle of an economic miracle right now. And I would stress middle. I think we have twenty years or so to go.

That’s great news for all Britain’s big multinationals – particularly the mining companies. Which leads us nicely on to…

4. The reawakening of the mining sector

This is what’s really got the FTSE shooting for the stars. Since the beginning of this year we’ve been following the gradual – and I mean very gradual, return to favour in the rejected mining sector. But as of this week, we’ve got another powerful player banging the drum…

JP Morgan delivered good news for miners. The bank moved mining’s position from “underweight” straight to “overweight” (they missed out “neutral” altogether). JP Morgan point to signs of a rebound in Chinese activity, lower input costs for the sector and of course, the recent lacklustre performances in the industry. Wow… they’ve noticed!

5. The interference of central banks

And of course, this is all underlined by the interference of central banks. They’re keeping the rocket fuel for stocks topped up. It’s not just the Fed in the USA, it’s a joint effort from all central banks to keep the markets moving. Even China is getting in on the act.

So how do you play the rising FTSE?

I have a simple strategy – just buy when the index is in a dip. Easy!

The easiest way to track the dips is to use Bollinger Bands.  I’ve written about them plenty in the past. You can learn how they work here and here. You can even turn it into a trading regime if you want to. I’ll come back to that again soon.

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  • jimtaylor

    I don’t think there is anything significant in reaching the same level as 14.5 years ago in nominal terms. To get to the same value in real terms would require the FTSE100 to go beyond 9000 in today’s currency.

    We have yet to see a recovery across most of Europe and UK companies still have spare capacity for exports in particular, so I think we are still in a Market Recovery phase and not yet into bull territory.

    • Sceptical

      Spot on jimtaylor – exactly what I was thinking. Saelensminde should engage his brain more often before his fingers hit the keyboard!

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