A decade ago, in March 2003, the FTSE 100 bottomed out at 3,287 and since then has seen a banking crisis, global recession, two new UK prime ministers and a change of government.
And while each of these has knocked the FTSE 100 off its upward trajectory – some only slightly, others quite significantly – the UK’s leading index has increased by 93 per cent since then.
The FTSE All-Share too has nearly doubled since the market low of March 2003 and the total return of that index to date is 193 per cent, according to FE Analytics.
For investors this is good news.
Tom Stevenson, investment director at Fidelity Worldwide Investment, says: “The key lesson I take from the performance of stockmarkets in the past 10 years is that when sentiment is most depressed the potential rewards are usually greatest.
“When the market bottomed in March 2003 the British invasion of Iraq was imminent, the TMT boom had ended badly and almost everyone was pessimistic about the outlook for investing. The reality was that this was a great time to invest.”
The question now is whether this can continue.
Matt Hoggarth, investment analyst at Thesis Asset Management, says: “Equity markets are certainly not over-valued by historical standards and there are pockets of cheapness. Technical indicators look strong, with some chartists predicting that the FTSE 100 could peak in the mid-6,000s. There is liquidity on the side-lines of the market which could easily drive prices to these levels if confidence is maintained.”
Risk aversion
For Mr Hoggarth, the short-term outlook is positive, but he does have concerns, he says, on a return to “risk aversion and volatility” before the end of 2013.
“Fundamentally the global economy remains weak, with the World Bank forecasting an aggregate contraction of 0.1 per cent of GDP in the G7 economies this year,” he adds.
“Spain and Italy have been capitalising on low yields by issuing large volumes of debt to eager buyers so far this year, but their budget deficits still present longer-term risks. Japan’s eagerness to lower the yen exchange rate has also raised the possibility of international friction over currencies, as countries battle for competitiveness.”
Psigma Investment Management’s Tom Becket says he is “cautiously optimistic” on the outlook for the UK stockmarket, describing it as “crystal that can break easily”.
He adds: “We have become concerned by the short-term complacency that has driven equity markets to one of the best starts to the year in decades.
“Coming after a strong end to 2012, we believe that markets have moved too far, too quickly and it is prudent to bank some profits and re-evaluate the short-term downside and upside risks.
“Equities will have to climb the ‘wall of worry’, as the structural and cyclical risks continue to rear their respective and collective ugly heads and ensure volatility is here to stay.”
Strategists are also becoming increasingly concerned with the strong run on equities seen at the beginning of this year.
