FTSE 100 takes the lead. Forecast as of 16.02.2022

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Whereas most inventory indices within the US and Europe have corrected, British shares are in excessive demand. Has the FTSE 100 exhausted its progress potential? Allow us to focus on this matter and make up a buying and selling plan.

Basic FTSE 100 forecast for six months

In 2021, the UK FTSE 100 rose by 25%, dropping each the US S&P 500 and the European EUROSTOXX 50. The FTSE 100 bought off to a greater begin in 2022. The UK inventory market enjoys the well-deserved consideration of traders worldwide, displaying constructive dynamics for the reason that starting of the yr, not like most inventory markets in developed international locations. What’s the motive for this?

In 2021 cash was actively flowing into the US as a result of large-scale fiscal and financial stimulus from the White Home and the Fed. Now the scenario has modified dramatically. Tech giants have misplaced their luster. Their valuations in opposition to the background of a speedy rally in US Treasury bonds look overpriced, which ends up in sell-offs by asset managers. They’re compelled to search for one other place to speculate their capital. Europe is their first alternative. In keeping with buyer surveys by Goldman Sachs, the European fairness market could be the very best place to speculate cash in.

Potential greatest performers in 2022

  

Supply: Bloomberg.

The scenario within the UK is growing particularly actively. The FTSE 100 has grown by 3% for the reason that begin of the yr as a result of traders’ bets on worth shares. The construction of the inventory index is dominated by securities of banks and oil corporations equivalent to Barclays, Lloyds Banking Group, Royal Dutch Shell, and BP. Banks profit from tighter financial coverage expectations from the BoE, particularly as inflation accelerates within the UK to a brand new 30-year excessive of 5.5%. Oil corporations profit from the expansion of Brent worth within the course of $100 per barrel.

When it comes to PE, the FTSE 100 is buying and selling at a 17% low cost to the EUROSTOXX 50 and has a 3.9% dividend yield. This determine is roughly twice as excessive as that of world peer shares, so the optimism of Goldman Sachs, Citigroup, and JP Morgan concerning the intense way forward for the FTSE 100 is justified. Solely HSBC is bearish, claiming the FTSE 100 rally will finish quickly.

There are different kinds of dangers priced in British shares, the discount of which may give them a brand new impetus, e.g., demography, structural financial issues, and geopolitics. On this regard, the restoration of ties destroyed as a result of Brexit and the de-escalation of the battle in Jap Europe are robust arguments in favor of FTSE 100 purchases .

In keeping with IMF forecasts, UK GDP will broaden by 4.5% in 2022, whereas its US peer will broaden by solely 4%. The issue of six charge hikes by the Fed this yr has already been priced in US banks’ quotes. The Financial institution of England is much less hawkish thus far, which signifies that the futures market underestimates the pace and magnitude of the rate of interest improve.

FTSE 100 buying and selling plan for six months

In my view, the potential of the FTSE 100 rally is way from exhausted. The British inventory index has good possibilities to rise to 7870 – 7940 throughout 2022. Subsequently, I like to recommend utilizing corrections to enter purchases.

   

 

Worth chart of FTSE in actual time mode

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