Thursday, December 7

Boost from weaker sterling on Brexit fears: FTSE 100 extends record winning streak with ninth closing high



The FTSE 100 saw the longest run of record closing highs yesterday as the index recorded its ninth consecutive gain on the back of further sterling weakness.

The index, which closed the day up 37.7 points on 7,257, has hit a fresh record high at the close of every session for nine days, beating the record of eight closing highs set on 4 May 1997 following Tony Blair’s General Election victory, according to The Daily Telegraph.

This record-breaking run, which began when markets reopened after Christmas on 28 December, is the longest since the index’s inception in 1984.

As well as its ninth consecutive all-time closing high, the FTSE 100 also registered its 11th successive daily gain in a row, matching the record set three times in 1997, 2004 and 2009.

FTSE 100 shares received an extra boost from a further decline in sterling as investors looked to sell the currency on the back of Prime Minister Theresa May reiterating plans for a ‘hard Brexit’, with immigration controls not access to the single market at the top of her priority list.

The pound fell 1.3% to $1.212 after the Prime Minister’s comments, however it has since made a slight recovery, edging up to $1.216 in early morning trading.

Laith Khalaf, senior analyst at Hargreaves Lansdown, commented: “The stockmarket moves down as well as up, but you wouldn’t have guessed that if you’d been keeping your eye on the Footsie for the last few weeks.

“The market rally has been driven by a falling pound and rising metals metal prices, and in its eleventh day received a boost from an unexpected source in the form of the supermarkets, after Morrison issued a positive Christmas trading statement.

“While the FTSE 100 stands at a record level, valuations on the UK stock market are not at abnormally high levels once you factor in the earnings produced by UK companies.

“What is more the headline index doesn’t account for dividends, which are a key element of returns from the UK stockmarket, and are particularly attractive when interest rates are so low.

“As ever the short term could bring feast or famine, but either way investors should keep focussed on the long term, which is where the stock market really comes into its own.”

Mark Martin, head of UK equities at Neptune, said: “An important reason for the strength of the FTSE 100 is the fact that the pound sterling is weaker against the US dollar than at any time since the mid-1980s. This means that UK assets in general – and particularly those with US dollar revenue or dividend streams – appear outstandingly cheap to American buyers on a pure currency basis.

“Whilst we saw unusually large amounts of M&A in the FTSE 100 in 2016, the market appears to be anticipating further M&A in 2017 driven in part by the weakness of sterling.

“Ironically, I believe the prospects for M&A are in fact much stronger in the FTSE 250 index despite the fact that this market has been a weaker performer in 2016. Historically there has tended to be much more M&A in the FTSE 250 than in the FTSE 100 and valuations in the mid- and small-cap parts of the market are unusually low relative to the FTSE 100.”