No buyers for the Footsie

At last, the FTSE 100 has "its head back above water", says Simon Watkins in The Mail on Sunday. After a month below 4,500, Britain's blue-chip index outstripped its major global counterparts last week, gaining 2.3% and hitting a 19-month high of 4,550, thanks to encouraging earnings reports and the news that Standard Life, Europe's biggest mutual life insurer, had completed the sale of a major tranche of equities to meet new solvency requirements.

Standard Life says it ditched 7.5 billion shares in just six weeks, says Bill Jamieson in The Scotsman. No wonder the FTSE 100 has so "starkly" underperformed recently. Now that the market is no longer "banging its head against a brick wall", it should bounce. Indeed, says Patience Wheatcroft in The Times. The completion of the sale without a major market slide has shown the "underlying resilience" of shares; along with encouraging recent economic data, this should entice potential buyers back in.

Institutional investors may also add impetus, says Mike Lenhoff in The Business. At present, "no one wants to touch the blue chips with a barge pole" - witness the sharp slide of the "big four" sectors (oil, telecoms, pharmaceuticals and banks) relative to the overall market over the past few weeks as mid caps have moved sharply higher. But with the big four now cheap in p/e and yield terms, and sterling strength, which has hampered the blue chips, looking unsustainable, fund managers may decide that "the large caps are due for some catching up".The FTSE 100 should then "sail past its recent peak" and move to the 5,000 level.

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Don't count on it, says the Frankfurter Allgemeine Zeitung. According to Kevin Gardner of HSBC, the FTSE 100 will struggle because, with UK rates on the rise, there is less scope for a recovery than on the continent, where the prospect of structural reforms could give equities a kick. Equity sales by UK pension funds, which account for 16% of the market, may also hamper progress. And not just in 2004, says the FT. Pension funds are being "pushed inexorably towards the bond market" over the long term as they tailor portfolios to ageing members, and it's hard to see life insurers taking aggressive equity positions again given the decline of the with-profits business. Note too that retail investors are unlikely to plug the demand gap - they are still scarred by the bear market and the Government "is not exactly encouraging a popular shareholder culture". Nor is there "a great wall of foreign money" waiting to buy UK equities - Britain's heavy weighting in global indices will shrink as the appeal of fast-growing Asian markets rises. So where will the buyers come from?