The FTSE 100 hit a fresh all-time high on Friday before pulling back to close at 10,868, having come within 11 points of the 11,000 mark, as global investors continue to find value in London-listed stocks despite the ongoing Middle East conflict.
The index is up more than 9 per cent on the year. The S&P 500, the most representative US index, has gained more than 8 per cent over the same period. Both benchmarks have held their gains even as the Middle East war continues with no clear end in sight.
Strong corporate results
Recent results from Shell, BAE Systems and Rolls-Royce have been strong. The market expects robust figures from HSBC and BP this week. HSBC currently holds the highest market capitalisation on the index at around £270 billion, with its shares up more than 30 per cent this year.
BP has received a boost from Shell’s performance and from news that it is putting its North Sea operations up for sale. Columnist Hamish McRae describes the sale as “a tidying up operation” and a sign that BP’s new chief executive, Meg O’Neill, is focusing on the company’s future winners. He adds that the decision should nonetheless serve as a warning to governments to consider the long-term consequences of their policies.
US money flowing into London
A key driver of London’s gains has been decisions by US investors to direct a share of their large profits toward UK-listed multinationals. Foreigners, mostly Americans, already own around two-thirds of the entire UK market. Three-quarters of FTSE 100 earnings come from outside Britain, making the index a relatively cheap way to invest in the global economy.
The scale of US markets puts London’s position in perspective. Apple alone is currently worth just under $5 trillion, more than all companies quoted on the London Stock Exchange combined. McRae estimates around 40 US corporations are individually worth as much as or more than HSBC.
McRae suggests US investors see Prime Minister Andy Burnham as a stop-gap and that big money remains broadly negative toward the UK. That sentiment is visible in the gilt market, where the 10-year yield climbed back above 5 per cent, which McRae links to the equivalent US Treasury yield rising to 4.75 per cent. He notes that Britain had not been paying a premium over the United States until Labour took office two years ago, except for a brief period under Liz Truss.
McRae argues that London does not need to become fashionable to attract more investment, only a little less unfashionable, and puts the chances of that happening at even.
