ANALYSTS are predicting that the FTSE 100 could reach 7,000 points in the next year, with the record high likely to come sooner into 2011 rather than later.
With 65 per cent of the FTSE’s revenue coming from overseas, it is in a strong position to gain from global economic growth, regardless of a more pessimistic outlook closer to home in the UK and Eurozone.
“Despite headlines of doom and gloom the FTSE 100 is well placed to benefit,” predicted Justin Urquhart-Stewart, marketing director at Seven Investment Management. “There’s about a 40 per cent chance of a 10 per cent rise up to somewhere around 6,666 points,” he continued. “But there’s a 20 per cent chance of a gain up to a high of 7,000 points.”
However, according to Urquhart-Stewart the gain is likely to happen earlier in 2011, with greater concern towards the end of the year about where the growth is coming from.
Other analysts have also been bullish about the FTSE’s prospects for 2011, with Graham Secker of Morgan Stanley reported as predicting a rise to 7,000 points if economic growth is strong and interest rates remain low.
The last time the index rose to close to 7,000 points was in 1999, when it peaked at 6,930.2 at the height of the dot com boom.
In 2010 the FTSE just breached 6,000 points on 23 December, before dipping to close at 5996.07 – the highest level it had reached since pre-credit crisis trading in June 2008.
Neil Shah of Edison Investment Research was more cautious about the FTSE’s prospects, with the company’s year-end prediction set at 6,400 points, an 8.5 per cent increase on the 2010 final figure of 5,899.94.
But even the bearish commentators admitted the index could see bigger gains before a year-end fall.
“It’s very possible that it could go higher at some point,” said Shah. “We think this will be a good year for the equity markets and there will be volatility before the year end.”
Shah cited inflation as the biggest contributor to the predicted gain. “Equities tend to do well out of inflation, though it’s a delicate balance,” he said. “A little bit is good; too much is not.”