Bullish mood in City sends market up to 13-year high
Stimulus measures pushing down bond yields keep equities in demand
Tuesday 21 May 2013
London’s leading share index closed at its highest level in almost 13 years yesterday, raising hopes that it will break through the 7,000 point barrier for the first time by the end of 2013.
The FTSE 100 reached 6,755.63 points after a choppy day of trading on the London Stock Exchange. This put it within touching distance of the 6,798.06 it reached on 4 September 2000, shortly after the height of the dot.com boom in the US.
Analysts said the rally was being driven by central bank intervention as well as low interest rates and falling yields on government debt. Chris Beauchamp, a market analyst at IG, said: “Economic data is getting better, and with no obvious crises on the horizon confidence is rising. The US budget crisis has gone away, and the markets even managed to shrug off concerns about Cyprus. The eurozone is not out of the woods yet, but investors are probably relieved to see the shift from relentless austerity to a more growth-focused policy.
“Central banks have also been pumping money into the economy, which has pushed down bond yields, resulting in a hunt for yield by income-seeking investors – particularly for companies that pay solid, reliable dividends. The hunt for income is driving renewed interest in the stock market, and with such big names as SABMiller, National Grid and Next boosting dividends this will continue to be an attractive destination.”
Experts will now watch closely to see whether the FTSE 100 can test its all-time closing high, the 6,930.20 it recorded on 30 December 1999. However, speaking yesterday they appeared to be split on how much further the markets would rise.
Nick Beecroft, the chairman of Saxo Capital Markets, said: “The new Bank of England Governor, Mark Carney, arrives in July and he has a reputation for innovation. The Bank’s mandate now allows it to aim for growth, rather than just inflation control, and one would expect Mr Carney to pursue the former enthusiastically.
“The US economy is ‘not too hot’ to make the Fed think about reducing its quantitative easing programme; meanwhile, the Bank of Japan has only just started a stimulus programme three times the Fed’s, which, in conjunction with ‘Abenomics’, has caused the Nikkei to soar by more than 70 per cent since October.
“This is a sweet spot for equity markets, which look set to enjoy a vintage summer, and 7,000 is a realistic year-end target for the FTSE 100.”
Others were less optimistic, predicting a fall back to around 6,000 points. Nick Lewis, director of trading at Capital Spreads, said: “Sometimes things seem like they are too good to be true because they are. The hype surrounding this year’s prolonged bull run is simply not backed up by economic hard data. It is highly likely that there will be a significant retracement in the second half of 2013 and the bears are sharpening their claws.”
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