Do you remember 1 April 1998? Probably not, says Bryce Elder in The Times. But you ought to it was the first time the FTSE 100 closed above the 6,000-point level. Yet two weeks later, it was back to 5,700, "on worries that the strength of the American economy would trigger a hike in interest rates". The FTSE "bounced against" 6,000 until falling below the "plimsoll line" on February 20, 2001. It had not reached those levels again until last week.
In July 2003, the FTSE hit its low of 3,227 so what has caused it to rise by over 85% in the last three years? One factor, says Elder, is mergers and acquisitions (M&A) activity. Takeovers have pushed the market ever upwards.
But that could be coming to an end, says George Trefgarne in The Sunday Telegraph. The mood has changed, and investors are now "starting to think more like owners as opposed to traders looking for a quick turn". Indeed, as the FTSE overcame its psychological barrier of 6,000, "at least five takeover attempts have flopped", says Trefgarne. You just have to look at Macquarie's failure to snap up the LSE and at the bids for House of Fraser, Kesa, HMV or Prudential to see that the M&A market is not as strong as it was.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
"Cheap credit helped create £106bn of takeovers worldwide last year. Around half of those were UK companies falling to foreign buyers," says Elder. And you can see why. On a global comparison, they are cheap on just 12 times forecast earnings and global growth has been strong. But as interest rates are increased around the world the US, eurozone and Japan are all raising rates the cheap money that has fuelled the boom is drying up. That shouldn't matter, says Trefgarne: "shares remain good value, especially when you compare them to the alternatives".
Even so, the FTSE is not invulnerable and risk is increasing, says David Fuller of Fuller Money. Indeed, "we are entering a period of increasing risk relative to what we have become accustomed to over the previous three years". Jonathan Davis of Intelligent Investor in The Independent, agrees. The market has soared and "it looks to me prudent on risk grounds to bank at least some of those gains now".
-
Rightmove: UK asking prices hit record high but Britain enters buyer’s marketHigher property taxes are stifling the typically-busy spring selling season and buyers are benefiting from more choice, meaning sellers must price their homes more competitively
-
Inheritance tax reforms: government urged to rethink curbs on rural reliefsMPs want the government to delay changes to inheritance rax reliefs for farmers
