What’s incorrect with the UK’s FTSE 100 index? Since July, it’s fallen behind different main worldwide indices. What’s inflicting this lag and can the Footsie preserve dropping?
Throughout the summer season heatwave, the FTSE 100 stored heating up. On 31 July, it hit an all-time excessive of 10,989.45, earlier than slipping again. In the meantime, its file closing excessive of 10,910.55 got here on 27 February.
On Thursday, the index closed at 10,441.60, 5% under its file excessive and 4.3% under its closing excessive. Nevertheless, different main market indices preserve hitting new heights.
The world’s main index, the US S&P 500, has risen 4.2% since 31 July, whereas the tech-heavy Nasdaq Composite index has jumped 7.8%, with Japan’s Nikkei 225 up 7.3%. In the meantime, the STOXX Europe 600 index has dipped 3.6%, whereas China’s CSI 300 Index has misplaced 6.1%.
New world, outdated economic system
What’s inflicting this break up between main fairness markets? I see three drivers.
First, the FTSE 100 is dominated by ‘outdated economic system’ companies, together with giant banks, miners, tobacco, and oil & fuel corporations. Some traders imagine these old-world companies have restricted alternatives for good progress.
Second, the Footsie is full of undervalued, dividend-paying shares. These worth shares appear boring to youthful traders, preferring proudly owning go-go progress shares. And the place higher to take dangers on racy shares than within the booming US tech and AI (synthetic intelligence) trade?
Third, world fairness progress is counting on a small variety of monumental, fast-growing tech companies. Assume the ‘Magnificent Seven’ tech mega-stocks, however on steroids. At this time, some corporations with no income and tiny revenues are valued at over $1trn.
After the autumn
With the US inventory market buying and selling at file valuations, I don’t see this pattern persevering with. I’m bracing for a market meltdown — if not in late 2026, then in 2027. My household portfolio is constructing a money pile and investing in protected money-market funds, so later we will purchase discounted shares if costs plunge.
Specialists say that it’s unimaginable to time markets reliably. Even so, I bear in mind the clever phrases of mega-billionaire investor Warren Buffett, who warned in 1986 that traders ought to “be fearful when others are grasping and grasping when others are fearful”.
Each main technological increase in historical past goes by three phases: breakthrough, increase and bust. These boom-busts embrace railways, electrification, automobiles, radio and TV, computer systems, and the web. This time spherical, it’s AI, information centres and robotics — spending on which is about to be the biggest in historical past.
As a worth investor, I’m looking for out crash-resistant shares. Presently, I’m operating the rule over UK biopharma group GSK (LSE: GSK). From 1989 to 2021, GSK was the biggest share in our household portfolio, whereas my spouse labored there. When Mrs D left, she offered virtually our complete holding to keep away from an enormous tax invoice.
At their 52-week excessive, GSK shares hit 2,282p on 18 February. On Thursday, they closed at 1,735.5p, valuing this British enterprise at £70.9bn. This inventory trades on 14.7 occasions trailing earnings, delivering an earnings yield of 6.8%. The dividend of three.9% a 12 months is roofed over 1.7 occasions by historic earnings.
Having dived 23.9% from its February excessive, GSK inventory has already suffered its personal crash. To me, it appears to be like undervalued, so I’ll urge my spouse so as to add extra to our rump holding. Different worth traders may take into account doing the identical!
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Cliff D’Arcy owns GSK shares.
