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Still plenty of upside?

Charles Sylvester of the Ipswich Office sees plenty of upside still in the UK markets as he rounds up the markets for his regular column in the East Anglian Daily Times

Charles Sylvester

in Features


Last week saw a number of global stock markets hit new all-time highs. There was general relief that a deal (of sorts) had been done with Greece, better economic data from China, and an upbeat assessment of the US economy from Janet Yellen, the Chairwoman of the US Federal Reserve.

Even the FTSE100 Index finally closed above the 6930 mark, first seen in December 1999; so compared to the US and Germany’s indices, which have both been in record territory for a few years now, UK blue chip shares have underperformed their rivals.

However some of those investors who bought stocks in late 1999 will still have done well as the Index simply measures price levels, not dividend pay-outs. A measurement of the FTSE100 Total Return shows that it is 66% ahead of its December 1999 level; a reminder of how important it is to reinvest one’s dividends.

In recent years, due to the fact that oil and mining companies make up 25% of the FTSE Index, sliding commodity prices have been a major drag on its performance. Currency swings have also had their effect as more than 70% of sales from the companies in the Index are made abroad, so that the strong pound seen over the last 18 months has managed to squeeze earnings.

However the recent weakness in Sterling, particularly against the US Dollar bodes well for dividends and should offset the impact of lower profits from some of the larger oil companies.

As for valuations, the FTSE100 price/earnings (P/E) ratio is currently about 16, which is a lot less than its level of 30 in 1999. This is just over the long-term average of 15, so plenty of up-side potential.

This article was first published in the East Anglian Daily Times. To view the website please go www.eadt.co.uk 

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