4 December 2017

Into the Festive Season

Philip Hammond's Autumn Budget passed with few surprises and markets barely registered the event.

Indeed, markets are generally very quiet. More often than not December is a good month for shares – not so much the festive spirit influencing investors, more professional managers window dressing their portfolios for the calendar year end. For some reason this usually results in shares pushing higher, albeit modestly.

Meanwhile, the committee that oversees the FTSE 100 Share Index will be deciding on which companies leave and which join from the second tier 250 Index. The Footsie, as it is known, is not the 100 largest companies by market capitalisation, as is popularly believed. Instead it is 100 of the 110 largest concerns. Drop to 111 and you must leave at the quarterly review. Reach number 90 in size and you are guaranteed a place. The bottom ten will be made up of companies ranked between 91 and 110 so that not too many changes take place.

This time it looks as though three companies will be swapping places. This can be quite a big deal for those affected. Some funds, most notably those tracking our benchmark index, are obliged to sell those leaving and buy those joining, adding impetus to these shares in both directions, depending on whether you are rising or falling in the capitalisation stakes. The actual change in the composition of the index won’t take place until the middle of the month, but it will be based on valuations as at the end of November.

Back at the start of the new millennium, the changes that took place were significant, with technology companies pushing out those of so-called legacy industries, only to find themselves relegated as the technology bubble deflated. It is always interesting to see who is on the up and which businesses are out of favour. With technology driving change ever faster, it is a wonder the level of turnover is not greater.

Talking of technology, I was fortunate enough to be invited to chair the JM Finn Technology Conference recently. Having once written a book on how technology was driving change in the financial services industry, admittedly many years ago, I looked forward to bringing myself up to date with the latest developments. I was not disappointed. Expect technology to stimulate still more change in our and, indeed, other businesses.

Otherwise, there is comparatively little for investors to get their teeth presently. True, we’ll have house price numbers soon from the Nationwide and some Purchasing Managers’ Indices, which are always watched closely by market analysts. At least the Bank of England’s stress tests gave an encouraging picture of the resilience of British banks. If markets do indeed drift higher towards the year end, perhaps Christmas shopping should be investors’ priority.

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