Professional, Investor: OK, we've hit 6,000 - now curb your enthusiasm

The FTSE 100 index's breach of the 6,000 level has given rise to much excitement. Indeed, three years on from the market low of March 2003, one commentator has even raised the possibility that the UK's premier stock-market index is on course for the giddy heights of 10,000.

Before we get swept away by the excitement that now surrounds the London stock market, it is worth taking a little time to examine how and why UK shares have rallied so strongly after a near three-year decline following the frenzy of the late 1990s.

First, it is important to point out that this is a global phenomenon. No major equity market has fallen in value over the three-year period since 12 March 2003. The FTSE 100 has risen by a little over 82 per cent during this period, but you don't have to travel far to find markets that have delivered far stronger returns.

In this same period, the DAX 30, the leading barometer of Germany's market, has risen by 167 per cent. Even France, now in the grip of mass protests, has been a stronger performer than the UK; its CAC 40 index is up by 114 per cent .

Investors willing to venture further abroad have enjoyed even better gains. Korea is up by 152 per cent, Brazil is up by 260 per cent and India's main market has rocketed by 269 per cent. This shows that investors around the world have had a strong appetite for risk. Second, it is worth looking at how the UK stock market has performed at a sector level. What stands out clearly is the performance of the industrial steels sector: prices of stocks in this sector have risen by more than 2,000 per cent over the past 36 months. Back in 2003, who would have thought that Corus - born out of a merger of British Steel and a Dutch rival - could be a "ten-bagger"; a share that rises more than tenfold?

Here is clear support for those commentators who have made the observation that the performance of the FTSE 100 owes less to the performance of UK plc or the domestic economy, and more to global factors.

There is no doubt that China's ravenous hunger for raw materials has helped to drive the rise of the market's top-performing sectors: construction and materials is up by 214 per cent, while mining is up by 176 per cent.

Surprisingly, the oil sector has underperformed the market, albeit by a narrow margin. Even though crude prices have hovered at around $60 per barrel, the sector is up by 78 per cent.

More interesting, perhaps, has been the lacklustre performance of the pharmaceutical sector, conventionally viewed as a defensive play at times of high market volatility. After food producers, pharmaceutical stocks - we hold Glaxosmithkline and Astrazeneca - have been the worst performers, at 59 per cent.

So what does this say about where the FTSE 100 index will go from here? Well, it plainly shows that global forces are driving the direction of the stock market, whether it is the investing community's attitude to risk, or the emerging Asian giants' appetite for raw materials. And, even if you could be sure what China's demand for steel was going to be in five years' time, this would clearly not help in determining whether the FTSE will be at 10,000 or 5,000 in 2011.

What is clearer is that we are closer to the end of the bull market than to its beginning. The latest UK rally has already outlasted the average bull-market run. Since the 1960s, only two periods of rising shares have lasted longer. We are also seeing activity more closely associated with the top of a market than its bottom, such as the burst of mergers and acquisitions in the past 12 months.

There is little point in making forecasts about market directions. Fund managers can add more value at the stock or fund level; by identifying companies with superior growth prospects or companies whose fundamental value has not yet been appreciated by the market, fund managers have a far better chance of producing good returns for their investors.

In any event, to ask where the FTSE 100 will be in five or 10 years' time is to ask the wrong question. What savers should ask is: why should I invest my money in the stock market? Past performance is, of course, no guide to future returns.

Yet the lesson of history is patent: equities remain the best source of returns for the saver who is willing to take the long-term view.

Chris Ralph is a portfolio manager and UK analyst at Fidelity International. Derek Pain is away.

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at

Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Compliance Manager

    £40000 - £60000 per annum: Recruitment Genius: A Compliance Manager is require...

    SThree: Talent Acquisition Consultant

    £22500 - £27000 per annum + OTE £45K: SThree: Since our inception in 1986, STh...

    Recruitment Genius: Experienced Financial Advisers and Paraplanners

    Negotiable: Recruitment Genius: This extremely successful and well-established...

    Guru Careers: FX Trader / Risk Manager

    Competitive with monthly bonus: Guru Careers: We are seeking an experienced FX...

    Day In a Page

    Seifeddine Rezgui: What motivated a shy student to kill 38 holidaymakers in Tunisia?

    Making of a killer

    What motivated a shy student to kill 38 holidaymakers in Tunisia?
    UK Heatwave: Temperatures on the tube are going to exceed the legal limit for transporting cattle

    Just when you thought your commute couldn't get any worse...

    Heatwave will see temperatures on the Tube exceed legal limit for transporting cattle
    Exclusive - The Real Stories of Migrant Britain: Swapping Bucharest for London

    The Real Stories of Migrant Britain

    Meet the man who swapped Romania for the UK in a bid to provide for his family, only to discover that the home he left behind wasn't quite what it seemed
    Cheaper energy on the way, but it's not all sunshine and rainbows

    Cheaper energy on the way, but it's not all sunshine and rainbows

    Solar power will help bring down electricity prices over the next five years, according to a new report. But it’s cheap imports of ‘dirty power’ that will lower them the most
    Katy Perry prevented from buying California convent for $14.5m after nuns sell to local businesswoman instead

    No grace of God for Katy Perry as sisters act to stop her buying convent

    Archdiocese sues nuns who turned down star’s $14.5m because they don’t approve of her
    Ajmer: The ancient Indian metropolis chosen to be a 'smart city' where residents would just be happy to have power and running water

    Residents just want water and power in a city chosen to be a ‘smart’ metropolis

    The Indian Government has launched an ambitious plan to transform 100 of its crumbling cities
    Michael Fassbender in 'Macbeth': The Scottish play on film, from Welles to Cheggers

    Something wicked?

    Films of Macbeth don’t always end well - just ask Orson Welles... and Keith Chegwin
    10 best sun creams for body

    10 best sun creams for body

    Make sure you’re protected from head to toe in the heatwave
    Wimbledon 2015: Nick Bollettieri - Milos Raonic has ability to get to the top but he must learn to handle pressure in big games

    Nick Bollettieri's Wimbledon files

    Milos Raonic has ability to get to the top but he must learn to handle pressure in big games
    Women's World Cup 2015: How England's semi-final success could do wonders for both sexes

    There is more than a shiny trophy to be won by England’s World Cup women

    The success of the decidedly non-famous females wearing the Three Lions could do wonders for a ‘man’s game’ riddled with cynicism and greed
    How to stop an asteroid hitting Earth: Would people co-operate to face down a global peril?

    How to stop an asteroid hitting Earth

    Would people cooperate to face a global peril?
    Just one day to find €1.6bn: Greece edges nearer euro exit

    One day to find €1.6bn

    Greece is edging inexorably towards an exit from the euro
    New 'Iron Man' augmented reality technology could help surgeons and firefighters, say scientists

    'Iron Man' augmented reality technology could become reality

    Holographic projections would provide extra information on objects in a person's visual field in real time
    Sugary drinks 'are killing 184,000 adults around the world every year'

    Sugary drinks are killing 184,000 adults around the world every year

    The drinks that should be eliminated from people's diets
    Pride of Place: Historians map out untold LGBT histories of locations throughout UK

    Historians map out untold LGBT histories

    Public are being asked to help improve the map