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Lengthy written off as a dinosaur of worldwide markets, the FTSE 100 index has out of the blue roared again to life, like one thing out of Jurassic Park.
It’s up 23.5% in six months and 16.4% yr up to now. And right now (6 October), it breached the 9,500 intraday barrier for the very first time.
Is 10,000 now firmly on the playing cards by the tip of 2025? I wouldn’t rule it out given the blue-chip index’s sturdy momentum.
Counterintuitive
On one degree, this surge is considerably counterintuitive. In spite of everything, the UK economic system is hardly firing on all cylinders. And whereas most Footsie companies earn the majority of their earnings abroad, the worldwide economic system can be beset by tariff uncertainty and a really murky outlook.
In the meantime, France’s new prime minister Sebastian Lecornu simply stop unexpectedly after lower than a month. Fiona Cincotta, senior market analyst at Metropolis Index, was quoted by Reuters as saying: “The truth that the French Prime Minister has resigned provides to issues round political and financial stability and extra broadly within the UK and Europe.”
Once more, you wouldn’t know there have been any issues European indexes. France’s CAC 40 continues to be up 8% yr up to now, whereas Germany’s DAX 40 has surged almost 23%.
Spain’s IBEX 35 isn’t any laggard, with positive factors of 34.5% in 2025, earlier than dividends.
What’s happening?
This makes extra sense after we have a look at what buyers have been shopping for. Within the UK and Europe (which lack many Huge Tech and AI shares), they’ve largely been snapping up banks and defence shares.
UK banks have made a rip-roaring comeback after almost twenty years within the wilderness following the worldwide monetary disaster. A lot stronger stability sheets have enabled Footsie lenders to shrug off each Covid and the 2023 banking disaster with out elevating capital.
With elevated curiosity charges resulting in improved profitability, and charges seemingly staying greater for longer, buyers proceed to pile in. HSBC (LSE:HSBA), Barclays, and NatWest are up 36%, 44%, and 36% this yr, respectively. In the meantime, Lloyds has surged round 54%!
Sadly, the rise in defence shares is self-explanatory because the Ukraine battle rumbles on. A large enhance in arms spending is about to occur throughout Europe over the following decade.
In response to this, Babcock Worldwide inventory has rocketed 158% yr up to now, whereas BAE Techniques has superior 77%.
Is there any worth left?
From the six names talked about above, I personal shares of BAE and HSBC. However BAE appears a bit extremely valued to me, buying and selling at 27.5 this yr’s forecast earnings. The dividend yield is now simply 1.7%.
In distinction, I reckon HSBC shares nonetheless look respectable worth. They’re buying and selling at 10 instances ahead earnings, whereas providing a good 4.9% yield.
One problem for HSBC is world commerce uncertainty. As an Asia-focused financial institution, HSBC is extra weak to tariffs and trade-related slowdowns within the area. That is an ongoing danger.
Nonetheless, as issues stand, HSBC is navigating all this effectively. It’s chopping prices, producing extra charges from rich purchasers, and lately introduced a brand new $3bn share buyback programme. The dividend is roofed twice over by forecast earnings.
Lengthy time period, I stay bullish on HSBC’s development prospects throughout Asia. If I didn’t have already got a decent-sized holding, I’d take into account shopping for the inventory right now, even with it close to a file excessive.
