The FTSE 100 market may be heading for success - here are the stocks to watch, according to experts.
“Britain’s stock market might finally be shaking off years of underperformance,” says Lucy Raitano on Reuters. The FTSE 100 has been left out of the “AI mania” gripping global markets, but enthusiasm over technology is starting to wane.
The UK’s blue-chip index made new record highs in May and is up by 7% so far this year, the same as the more domestically focused FTSE 250. London’s bias towards “old economy” sectors such as raw materials and banking have held it back in recent years, but that weakness is turning into a strength, says Bastien Bouchaud in Les Echos.
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
Commodities are real assets and thus look attractive in a time of persistent inflation, while higher-for-longer interest rates will boost bank profits. Thanks to Shell and BP, energy accounts for roughly a fifth of all FTSE 100 profits. “A 10% rise in oil prices translates into a two percentage point rise in FTSE 100 profit growth,” says Lilia Peytavin of Goldman Sachs.
London has plenty of room to catch up: the FTSE 100 has gained 12.5% over the past five years, losing its position as Europe’s dominant market to France’s CAC 40, which is up 49% over the same period. The prolonged uncertainty following the 2016 Brexit referendum prompted investors to attach “a higher risk premium to UK equities”, Steve Magill of UBS Asset Management tells David Thorpe in FT Adviser.
Global investors thought that UK assets were risky, so they were only willing to buy them at a discount. Yet calmer political waters in Britain (and more turbulent ones overseas) mean that the Brexit risk premium now looks to have disappeared.
With an election date on the calendar, global fund managers are feeling increasingly positive about the UK, say Farah Elbahrawy and Naomi Tajitsu on Bloomberg. Investors appreciate certainty and there is little doubt about who will win the election; there is little difference between the two parties on macroeconomics in any case. UK stocks are paying twice the dividend available in many comparable markets, but “continue to trade near a record-low discount” to other developed markets.
How long will the FTSE 100 success last?
The FTSE 100 has done well recently, but the baton could yet pass to the mid and small caps of the FTSE 250. The pound has risen against most other large currencies this year. That’s a headwind for the profits of FTSE 100 multinationals (which make much of their money in foreign currency), but good news for smaller, domestic companies, which find that their money goes further.
Small and mid-caps are on big discounts to large caps, Rachel Winter of Killik & Co tells Christopher Johnson in Morningstar. In addition to a strong pound, they will also enjoy a boost from eventual interest-rate cuts and a (modestly) better outlook for the domestic economy. There looks to be “particular value” in UK “small and mid-cap opportunities”.
This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.
-
Why Chinese stocks are so far out of favourThere’s little appetite for Chinese stocks despite low valuations.
-
The 62 UK areas where you could be priced out of using your Lifetime ISASaving for your first home in Croydon, Ealing, Brent or any one of these other locations? You could be at risk of being priced out of using your Lifetime ISA
-
Why Chinese stocks are so far out of favour
There’s little appetite for Chinese stocks despite low valuations.
-
Three companies that dominate their markets with critical productsA professional investor tells us where he’d put his money. This week: Charlie Huggins, manager of Wealth Club’s Quality Shares Portfolio, picks three stocks.
-
Should you continue to hold Smithson Investment Trust?Opinion Smithson Investment Trust, a small- and mid-cap fund, has struggled to live up to lofty expectations, says Rupert Hargreaves.
-
Primark owner Associated British Foods is an overlooked gem going cheap — should you buy shares?Associated British Foods, the owner of Primark, is a family-owned business, which means it is passed over by the increasingly popular passive investment funds. That spells opportunity for private investors, says Jamie Ward.
-
Trump's tariffs and a shrinking market for alcohol deal double blow to DiageoDonald Trump's tariffs are a further headache for drinks giant Diageo, which is already being buffeted by a decline in alcohol consumption.
-
Three stocks in recruitment companies with promising recovery playsRecruitment agency Robert Walters and its peers are struggling, but now's the time to buy, says Rupert Hargreaves
-
Four UK data companies to buy nowCompanies that create, harness or turn data into a valuable offering could be sitting on a hugely profitable gold mine. Rupert Hargreaves picks four of the best UK data companies to buy now.
-
What’s the outlook for the shipping industry in 2025?All we know for certain about the year ahead is that it will be volatile. But the container shipping sector thrives on choppy waters
