Picture supply: Worldwide Airline Group
The FTSE 100 is ending 2023 on an upbeat word after a constructive November and December, however this may hardly go down as a classic yr. The blue-chip index is up 2.37% total, ending the yr buying and selling at 7,733.24.
That’s a disappointment after a vibrant begin, which noticed the FTSE 100 breakthrough the 8,000 barrier for the primary time, hitting 8,012.53 on 16 February. Sadly, that was nearly as good because it bought. By 7 July, the index slumped to a year-low of seven,256.94.
Whereas the FTSE 100 moved principally sideways, buyers spent many of the yr cheering on the ‘Magnificent Seven’ US mega-cap tech shares. They drove the S&P 500 to a bumper 24.73% acquire. Nonetheless, it’s price remembering that Wall Road crashed virtually 20% in 2022, when London blue-chips didn’t.
Good however not nice
The FTSE 100 is tech-stock-poor, with exceptions like software program maker Sage Group and analytics specialist RELX. As a substitute, the index is wealthy in old-school banks, insurers and miners, which have been out of favour for years. The FTSE 100 trades at a price-to-earnings ratio of simply 9.5 instances, in opposition to a dizzying 26.35 instances for the S&P 500.
Given the worldwide recognition of US shares on the whole and tech particularly, I can’t see the 2 markets a buying and selling on comparable valuations. Nonetheless, I anticipate the valuation hole to shut, and the method may start in 2024.
World buyers have been down on the UK since Brexit, as have UK buyers, dazzled by Tesla, Nvidia et al. But many will have a look at immediately’s low valuations and surprise in the event that they’re lacking out. Particularly with our financial system anticipated to develop sooner than Germany’s.
A 2024 election could deter some, however with Labour chief Keir Starmer and Shadow Chancellor Rachel Reeves working exhausting to reassure markets, I’m not too involved.
9,000 would possibly show a stretch
UK shares ought to get a tailwind from falling rates of interest. The FTSE 100 presently yields a stable 3.78%. Buyers who purchase direct equities will discover a dozen shares yielding 6% or extra. Considered one of my favorite holdings, Authorized & Common Group, now yields 7.71%.
That appeared tempting when finest purchase financial savings charges and bond yields had been hovering across the 5% mark. It’ll look much more enticing in the event that they drop beneath 3%.
When investing, there aren’t any ensures. Finish-of-year forecasts are sometimes laughably mistaken. Everyone was anticipating China to growth in 2023 as Covid lockdowns ended. It didn’t occur.
But I’d be amazed if the FTSE 100 didn’t hit a brand new all-time excessive. It solely has to climb 3.62% to beat February’s peak. So what about 9,000? That requires a leap of 16.38% over the yr. Whereas I’m optimistic in regards to the FTSE 100, I don’t suppose it’s bought that a lot potential.
Nonetheless, with dividends and share buybacks approaching prime of any share worth progress, I’m hopeful of a double-digit complete money return. Since I purchase particular person shares slightly than index trackers, I hope to do higher than that. I’ve excessive hopes for key portfolio holdings 3i Group, Lloyds Banking Group, L&G, a resurgent Scottish Mortgage Funding Belief and Taylor Wimpey. Sufficient predictions. Now convey on 2024.
