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12 Feb | The Performance of the FTSE in Perspective

The UK FTSE 100 index enjoyed strong gains earlier this week as a result of higher metals prices. 

Earlier this week, the UK’s FTSE 100 index enjoyed gains of 0.3% to close at 6591.55. This was the fourth successive day of gains for the index. The positive sentiment was a direct result of higher metals prices. The gold price surged to a 2 week high – its longest really since August 2013 in New York. Among the biggest gainers were Randgold Resources and Fresnillo. But it’s not only the precious metals sector that is performing well in the UK, it’s Barclays too. This company reported pre-tax profits of £2.9 billion – £100 million greater than what Investec was forecasting. Miners were some of the biggest winners over the last two weeks, especially since Chinese buyers returned from their Lunar New Year Holiday – for a full week of trading activity. In fact, the Chinese consumed massive amounts of gold during 2013, as evidenced by the China Gold Association. The positive results in the UK FTSE 100 were bolstered by the continuing weakness of the US dollar. This was due to a recently released US Labour Market announcement. According to indications in the reports, the Fed could well be poised to delay a reduction of its assets/purchase program. It is no secret that the dollar has been feeling pressure as a result of monetary stimulus activity. A concomitant reduction in bond purchases is typically viewed as positive for the fate of the US dollar. Some of the top performing miners include the following:

  • BHP Billiton PLC +.55% (UK: BLT); +0.04% (BHP), +1.14% (AU: BHP)
  • Anglo-American PLC 1.4% (UK: AAL +1.42%)
  • Randgold Resources Limited +2.40% (UK: RRS)
  • Fresnillo PLC +8.83% (UK: FRES)

As alluded to earlier, Barclays PLC reported stronger than expected earnings with a pre-tax improvement on expectations. Barclays PLC added +1.22% (UK: BARC). The adjusted pre-tax profits Barclays PLC for 2013 are estimated at £5.2 billion.

Ongoing Weakness in Utility Stocks Hamper the UK FTSE 100

Broader gains were limited in the UK’s FTSE 100 equity index this week as the utility industry felt increasing pressure. While the index rose for the fourth consecutive session, and reached 6584.98 points by late afternoon trading, most of the points were in fact added by Barclays. Economic analysts happily welcomed plans by the bank to enact cost-cutting programs. Other than the strong performance by Barclays, there was very little to give momentum to the continued upward movement of the blue-chip index. Major utility stocks suffered a severe setback after the British energy secretary – Mr. Davey – commented that the profit margins for the UK’s energy companies gas supply units were simply too high. He further alluded to the possibility that British Gas might have to be divided up into smaller units. The latter comments sent share prices tumbling. For example, British Gas owner – Centrica – dropped 2.1% while its rival, SSE dropped a percentage point.

It’s a well-known fact in the UK investment arena that’s utility stocks produce solid dividends. However, the trend of late has been that political intervention in the British Gas market has been putting pressure on producers, thus squeezing out profits and depressing stock prices. These stocks are now being shunned by investors as they are less lucrative than before. The excessive regulation in the British Gas sector is seen as a big negative to potential investors. Given the lukewarm performance of the FTSE 100 – hot with miners and called with utilities – it’s early days to compare the expected earnings for 2014 with the actual performance of the FTSE 100 index for 2013. During 2013, a 4-year high gain of 14.4% was recorded. At present, the FTSE 100 index has dipped 2.5% since emerging market economies have tanked. Scores of emerging market economies have witnessed rapid currency devaluations – such as the South African rand, in addition to lower demand for investment in these countries.

Future Predictions for Investment in the FTSE 100 Index

Investors are quick to point out that the 2014 has only just begun. Despite the stop-start performance of the index this year, there are still 10 months to go. Investors with an eye to the long-term expect solid and sustained gains during the year ahead and the years to come. Since the UK economy is showing signs of recovery, this should be factored into the equation going forward. It is possible – according to several economists – that’s the FTSE 100 index could rise by approximately 5% by the end of February. That would put the index at around 6,900 points by March 2014. Since the fundamentals of the UK economy are intact, there is no reason to panic and no reason to rush in or out of the market. Big players in the UK market include Vodafone, EasyJet and International Consolidated Airlines. Other companies that have started to your strongly include Smith & Nephew, AstraZeneca, TUI Travel and others. The overall performance of the UK stocks across the board is certainly reason enough to celebrate a dynamic, robust and potentially profitable year ahead.

Author Bio

Orit Nathan Mahalal is Banc De Binary’s Head of Education Department: responsible for the wide range of cutting-edge educational content and tools for users, including educational videos, social activity and company blogs. Orit’s key priority is bringing to users & traders a wealth of expertise in order to give them as many advantages as possible in the fast-moving financial markets.

Staff Writer
rsvp@aimsoiree.co.uk