Brexit worries leave FTSE 100 in limbo

Britain's blue chip index will move little for the rest of 2017 with uncertainties over Brexit hitting investor sentiment, according to a Reuters poll

Market participants see the FTSE moving little in the next three months (Getty)

Britain’s blue chip FTSE 100 index will move little for the rest of the year and only drift higher in 2018, lagging behind Europe as uncertainties over Brexit negotiations bite investor sentiment, a Reuters poll showed on Thursday.

While Britain’s FTSE has enjoyed a modest rise so far this year, a jump in sterling to its highest level since the June 2016 referendum on European membership has put the brakes on further gains for its mostly big, dollar-earning constituent companies.

Throw into the mix this year’s underperformance of the heavyweight oil sector, which accounts for nearly a fifth of the FTSE 100’s market cap, and it’s no surprise the FTSE has been the worst-performing major market in Europe so far in 2017.

Market participants see the FTSE moving little in the coming three months and finishing 2017 at 7,456 points, according to a Reuters poll of 33 market watchers.

This would give the index a 4.4 per cent gain over the year, around half the 9 per cent rise predicted for the broader European STOXX 600 market.

The lacklustre pattern is set to continue – respondents saw the FTSE gaining just 7 per cent from the end of 2016 to the end of 2018, while they predicted a 16 per cent gain for the STOXX over the same period.

Since last June’s vote for Brexit, the FTSE has enjoyed the translation boost of a weak sterling, which helps profits of international blue-chips that dominate the index.

But this has not been enough to inspire confidence in investors, many of whom prefer the non-UK European market, which trades at a similar premium to its average valuations.

“Regardless of theoretical benefits from softer sterling for foreign currency-earning FTSE multinationals, the real-term impact of volatile inflation and a murky horizon on growth will keep pressuring the UK investment case,” said Ken Odeluga, market analyst at City Index.

Global funds have been reducing UK equities while increasing their exposure to the eurozone, HSBC analysts said last week.

Reflecting a stalling market, the range of forecasts for end-2017 was tighter than in a June poll, with 7,900 the highest level and the lowest was 7,000.

The FTSE is expected to climb to new records next year, hitting 7,630 points by the end of 2018. This forecast was lower than that in a June poll, indicating fading enthusiasm among investors in the market.

Uncertainty over Brexit negotiations, unattractive valuations and a softening in earnings revisions were most-commonly cited for caution on the UK stock market.

Investors have been frustrated with a lack of clarity and progress in the Brexit negotiations, with a much-anticipated speech from Prime Minister Theresa May in Florence disappointing market participants with its lack of concrete details.

Analysts’ earnings revisions on the index turned negative as third-quarter reporting season approached, and one respondent said investors would focus on underlying quality of earnings rather than headline figures.

Reuters