London’s premier index smashed another post-lockdown record yesterday in a sign investors are looking through the Covid-19 crisis.
The FTSE 100 closed 0.91 per cent higher yesterday, breaching the 7,600 mark for the first time since January 2020.
Sentiment was boosted by international investors waking up to the fact that large swathes of companies listed in London are undervalued, making them prime targets for a takeover this year.
Reports of a long list of the world’s top private equity funds swirling around GlaxoSmithKline’s consumer healthcare business has been interpreted as a sign that 2022 could be a booming year for M&A activity in the City.
Michael Hewson, chief market analyst at CMC Markets UK, said news of the £50bn bid tabled by Unilever for Glaxo’s consumer healthcare arm over the weekend had reinforced “the truth that a lot of companies on the UK’s benchmark index are seriously undervalued”.
Shares in London over the last decade or so have tended to trade at discounts compared to companies listed in Wall Street and on the Continent.
Although lower valuations weaken core financial ratios used by investors when building their portfolios, it does make London companies more attractive to funds and rival companies on an acquisition hunt, fuelling speculation FTSE-listed firms could be snapped up over the next year.
A plateauing in Covid-19 cases in the UK driven by the Omicron burst seemingly petering out has boosted investors’ forecasts for the British economy.
Prime Minister Boris Johnson is expected to ditch plan B measures on January 26, likely lifting economic activity in the months ahead.
“Sentiment remains buoyant for EU and UK stocks as investors continue to look through the current wave of the infections,” Fawad Razaqzada, market analyst at ThinkMarkets, said.
“The relatively lower mortality rates of Omicron variant, coupled with ongoing vaccinations efforts, has raised hopes we will transition to endemic and that the economy will recover strongly in the months ahead,” he added.
The FTSE 250 finished 0.56 per cent higher yesterday.