BRITAIN’S FTSE 100 index closed down 27.56 points on the final day of 2012 trading as investors remained anxious over whether US lawmakers can agree crucial budget strategy and avoid the “fiscal cliff”.
But despite the fall, to a close of 5,897.81, analysts predict the blue chip share index will rise 8 per cent by the end of 2013, accelerating on expectations the global growth outlook will improve.
A Reuters poll of 50 strategists forecasts the FTSE 100 will climb a mere 150 points by the middle of 2013 before breaking out to 6,400 by the end of the year,
“For investors looking to put their money somewhere, equities still present a viable option when compared to other asset classes, with the potential to offer capital appreciation as well as a decent yield,” Angus Campbell, head of market analysis at Capital Spreads, said.
The FTSE rose 6.4 per cent last year, helped by gains in banking shares but underperforming European peers as heavyweight mining shares and international conglomerates struggled in the first half of the year. Miners lost 30 per cent peak to trough last year, but recovered 17 per cent from June to the end of the year.
“Internationally exposed stocks should continue to do well and that means the FTSE 100 ... However, severe headwinds remain in terms of the Eurozone debt crisis and so gains for stocks might be hard to come by particularly if those major threats to the global economy materialise,” Campbell said.
Those threats include uncertainty over the so-called “fiscal cliff” – a series of tax rises and spending cuts totalling $600bn (£371bn) which could throw the US economy into recession – and pressure in the bond markets on peripheral Eurozone countries.
“Although concerns remain over Euro zone sovereign debt issues, the US “fiscal cliff” and the outlook for the Chinese economy, we believe these headwinds will be outweighed by positive factors such as strong corporate balance sheets, a reasonable valuation and an attractive dividend yield,” said Paul Kavanagh, partner at Killik & Co.
However, other investors saw British stocks underperforming European peers if banks continue their recent rally. Goldman Sachs chief global equity strategist Peter Oppenheimer told reporters at a 2013 briefing that he expected Britain’s FTSE 100 to rise by slightly less than the Euro STOXX 50 in 2013.
“We see a rebound in financials, and there's a greater concentration of financials in the Euro STOXX 50.”
The poll revealed a broad range of predictions, from 5,500 to 6,560 for mid-2013 and 5,700 to 7,000 at the end of the year, with all but two of the 50 strategists polled seeing the FTSE hitting at least 6,000 by the year end.