BRITAIN’S top shares have further to run this year, despite nearly passing their all-time high last week, according to brokers.
The equity market is “a long way” from the excessive valuations seen in December 1999, when the FTSE 100 index of leading shares hit a peak of 6,950.
Only one in five FTSE sectors is at a higher valuation now than in the late 1990s compared with earnings, the broker Shore Capital said.
The index jumped to 6,898 on Tuesday, just 52 points shy of the record, before closing the week at 6,855.
Market watchers are largely optimistic that the FTSE 100 will push still higher by the end of the year, potentially topping the 7,000 mark.
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Nick Nelson, head of European equity strategy at the investment bank UBS, said: “I think the FTSE 100 will end the year higher than the cur- rent levels of close to 7,000. But there are some specific UK risks that will hold it back [including] politics, currency and interest rates.”
David Buik, chief City commentator at the broker Panmure Gordon, said the index could climb above 7,000 this year. “If we get some decent corporate earnings in October, it [the market] could break through the 7,000 mark,” he said.
Gerard Lane, investment strategist at Shore Capital, predicted that shares would be driven higher by upgrades to company earnings, especially if sterling continues to trade lower against the dollar. Earnings earlier in the year were hit by the stronger pound, but that trend could now reverse. “The valuation story is very different now than in 1999, with the market not as ridiculously expensive,” Lane said.
Only 10 sectors are more highly valued now than at the 1999 peak, based on price to earnings ratios, he added.
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However, Michael Hewson, chief market analyst at CMC Markets, takes a different view: “It’s easier to say that it will go higher when you get close to these all-time highs, but I don’t see it happening. I think it will be at 6,800 by the end of the year.”
He argues that the FTSE 100 is less exposed to the improving UK economy and more exposed to global trends, particularly a deceleration in Asia, through its miners. Also, he said, the banks’ problems will remain a significant drag on the index.