11 March 2015

Market comment: Peaks, Troughs & Anomalies

Well, we eventually made it


Moreover, many other indices have been in new high territory for some time, both at home and abroad. In such circumstances it is worth reflecting on why our own benchmark measure has proved so disappointing. After all, even the American NASDAQ index has returned to the levels last seen at the end of the technology boom, which finally burst early in 2000.

The problem we have is twofold. First, while the Footsie is an index of the largest companies listed on the London Stock Exchange, not all of them are representative of our domestic economy. Many conduct the bulk of their business outside the UK – some all or virtually all of it. Second, this index has been affected by the way in which certain dominant groups of companies behave.

For example, the largest single sector in the years running up to the financial crisis, which started nearly eight years ago, comprised the banks. Their share prices were shredded as financial institutions collapsed and taxpayers had to enter into costly bail-outs. Little wonder the FTSE 100 Index suffered, but then so did shares all around the world.

As confidence recovered, helped in no small measure by a resurgent Chinese economy, it was the resource stocks – mining and oil companies – that took over the top spot in the index. These have suffered as Chinese growth slows and commodity prices tumble. Against such a background, it is a wonder the index has done as well as it has.

But we now have an election rushing towards us and dominating news reports. With the outcome so uncertain, this could act as a restraint on shares. Markets dislike uncertainty, after all. But who wins here at home should have little effect on the mining and oil giants. Perhaps it is just as well that our market is so international in composition.

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