The UK benchmark index has had a mixed 2017, lagging its peers but staying on track for an overall gain, and having passed the 7,600-point mark in this year’s Santa rally. Analysts meanwhile are divided on the FTSE 100’s prospects in 2018, amid the ongoing Brexit process.
FTSE 100 lagging peers
The FTSE 100 is on track to record a gain this year, with almost 70 percent of its constituents having seen their share prices rise, according to Morningstar. Despite the gain in individual blue-chips, the index is lagging behind peers due to a stronger pound, with sterling recovering in the wake of last year’s Brexit vote, which sent the currency plunging. With three-quarters of the index’ constituents having international exposure, a strong pound spells bad news for the Footsie.
“The important point is that the FTSE 100 is not up as much as equities elsewhere, and its rally this year is simply a reflection of the good environment for equities in general,” Daniel Murray, head of research at EFG Asset Management, recently told Bloomberg. The newswire notes that the blue-chip index is trailing the MSCI All-Country World Index by the widest margin in 14 years.
Analysts mixed on index’s prospects
Opinion on the outlook for the FTSE 100 in 2018 has been mixed. Morningstar notes that an optimistic prediction of the index breaching the 8,000-point level for the first time ever has come courtesy of AJ Bell, while 64 percent of investment trust managers believe that the Footsie will stand between 7,500 and 8,000 in 12 months’ time.
Others, however, have been less upbeat. Bloomberg reports that strategists at JPMorgan Chase & Co and UBS are warning that the old adage of the index’s negative correlation with the currency could be getting stretched, meaning equities may suffer even if sterling retreats.
“GBP could be a ‘lose-lose’ proposition for U.K. equities, and the FTSE 100 versus GBP correlation could flip positive in case GBP gaps lower,” JPMorgan strategists wrote this month, as quoted by the newswire. Bloomberg further quotes EFG Asset Management’s Murray as saying his firm is positioning for a tougher stage of Brexit negotiations ahead, and sees the FTSE 100 continuing to underperform the rest of Europe next year.