The FTSE 100 index is ready to rally

On 12 February 2020 the FTSE 100 hit a pre-pandemic peak of 7,534, says Tom Howard in The Times. One year and a “vaccine-fuelled” rally later and it is still more than 12% short of that level. That compares unfavourably with other major stock markets, with the MSCI World index regaining its pre-Covid levels by August.

The key issue for the FTSE is its sectoral composition, says James Coney in the same paper. The FTSE 100 is full of out-of-fashion energy businesses, banks and high street retailers. In this age of frenetic digital innovation, it has just three tech firms that comprise 0.7% of the index. Tech accounts for 30% of America’s S&P 500.

Ocado is the FTSE 100’s only real tech star, adds Howard, but London’s junior market, Aim, looks more promising, boasting the likes of Asos. The Aim index has gained more than 25% in the past year even as the blue-chips have sagged.

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Global reflation should see the FTSE’s weaknesses turn into a strength, says Paul Dales of Capital Economics. Global economic recovery will bring more prosperous times for the FTSE 100’s stable of “consumer-facing, energy and financial” businesses. On a cyclically-adjusted price/earnings ratio of about 14 the index looks like a bargain compared to other developed markets and should attract growing interest. Dales thinks the index could rally more than 20% between now and the end of 2022.

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Alex is an investment writer who has been contributing to MoneyWeek since 2015. He has been the magazine’s markets editor since 2019.

Alex has a passion for demystifying the often arcane world of finance for a general readership. While financial media tends to focus compulsively on the latest trend, the best opportunities can lie forgotten elsewhere.

He is especially interested in European equities – where his fluent French helps him to cover the continent’s largest bourse – and emerging markets, where his experience living in Beijing, and conversational Chinese, prove useful.

Hailing from Leeds, he studied Philosophy, Politics and Economics at the University of Oxford. He also holds a Master of Public Health from the University of Manchester.