LONDON: Britain’s blue chip FTSE 100 index will move little for the
rest of the year and only drift higher in 2018, lagging Europe as uncertainties
over Brexit negotiations bite investor sentiment, a Reuters poll showed on
Thursday.
While Britain’s FTSE has enjoyed a modest rise so far this year, a jump
in sterling to its highest level since the June 2016 referendum on European
membership has put the brakes on further gains for its mostly big,
dollar-earning constituent companies.
Throw into the mix this year’s underperformance of the heavyweight oil
sector, which accounts for nearly a fifth of the FTSE 100’s market cap, and
it’s no surprise the FTSE has been the worst-performing major market in Europe
so far in 2017.
Market participants see the FTSE moving little in the coming three
months, finishing 2017 at 7,456 points according to a Reuters poll of 33 market
watchers. It closed at 7,468 on Tuesday.
This would give the index a 4.4% gain over the year, around half the 9%
rise predicted for the broader European STOXX 600 market.
The lacklustre pattern is set to continue - respondents saw the FTSE
gaining just 7% from end-2016 to end-2018, while they predicted a 16% gain for
the STOXX over the same period.
Since last June’s vote for Brexit, the FTSE has enjoyed the translation
boost of a weak sterling which helps profits of international blue-chips that
dominate the index.
But this has not been enough to inspire confidence in investors, many
of whom prefer the non-UK European market, which trades at a similar premium to
its average valuations.
“Regardless of theoretical benefits from softer sterling for foreign
currency-earning FTSE multinationals, the real-term impact of volatile
inflation and a murky horizon on growth will keep pressuring the UK investment
case,” said Ken Odeluga, market analyst at City Index.
Global funds have been reducing UK equities while increasing their
exposure to the eurozone, HSBC analysts said last week.
Reflecting a stalling market, the range of forecasts for end-2017 was
tighter than in a June poll, with 7,900 the highest level while the lowest was
7,000.
The FTSE is expected to climb to new records next year, hitting 7,630
points by the end of 2018. This forecast was lower than that in a June poll,
indicating fading enthusiasm among investors in the market.
Uncertainty over Brexit negotiations, unattractive valuations and a
softening in earnings revisions were most-commonly cited for caution on the UK
stock market.
Investors have been frustrated with a lack of clarity and progress in
the Brexit negotiations, with a much-anticipated speech from Prime Minister
Theresa May in Florence disappointing market participants with its lack of
concrete details.
Analysts’ earnings revisions on the index turned
negative as third-quarter reporting season approached, and one respondent said
investors would focus on underlying quality of earnings rather than headline
figures. - Reuters
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