City analysts forecast the FTSE 100 to climb above 7,000 in 2014
For many stock market experts forecasting what will happen in 2014, the question isn’t whether the FTSE 100 will rise or fall, but how high the index will go.
After climbing 14.4pc in 2013, its best annual performance since 2009, to finish at 6,749.09, most City analysts expect the FTSE 100 to continue to gain ground, bolstered by the improving US economy and receding fears about eurozone stability.
Indeed, many forecast the benchmark index to break its previous record set in the final trading session of 1999, when the index reached 6,930.2 at the height of the dotcom bubble. The experts at Citigroup (NYSE: C – news) have set a year-end target of 8,000, while Goldman Sachs (NYSE: GS-PB – news) expects 7,500.
Gerard Lane, market strategist at stockbroker Shore Capital (Other OTC: SHOCF – news) , said two key factors were likely to determine the FTSE 100’s performance. “One is how resilient is the US economy, and then the other factor is can China begin to demonstrate continued growth at a pace that will benefit the commodities plays in the UK market.”
The poor performance of the resources companies, which have a heavy weighting in the FTSE 100, acted as a drag on the benchmark index in 2013, with worries about the slowing economic growth in China the world’s biggest metals consumer hitting mining shares. Chilean copper producer Antofagasta (LSE: ANTO.L – news) dropped 37.8pc to 824p, Anglo American (LSE: AAL.L – news) slid 30.3pc to £13.20, and BHP Billiton lost 12.2pc to £18.69.
As a result of those falls, the Footsie underperformed markets in the US and Europe , which recorded bigger gains than the London index last year. In America, the S&P 500 jumped 29.6pc while the DAX in Germany climbed 25.5pc.
Even so, during the first five months of the year, the US Federal Reserve’s $ 85bn-a-month (£51.4bn) quantitative easing programme helped the FTSE 100, along with stock markets around the world, sharply higher by making shares more attractive relative to bonds. London’s blue-chip index rose to 6,840.27 in May, its best level since 1999, as investors snapped up equities. But the index promptly tumbled from that peak when the Fed suggested it might slow the pace of QE so-called tapering as the US economy improved.
While US indices recovered to finish 2013 at record highs amid optimism about the American economy, the weakness of the London miners meant the FTSE 100 failed to surpass its May peak. With the Fed announcing in December that it would trim QE by $ 10bn, investors will be keeping a close eye on how the world’s largest economy reacts to the reduction in stimulus.
Gold was a major casualty of Fed tapering and dropped 28pc. That tumble hurt Mexican silver and gold producer Fresnillo (Berlin: FNL.BE – news) , the heaviest faller in the index with a plunge of 59.6pc to 745½p, and gold producer Randgold Resources , off 36.3pc at £37.90. Emerging markets were also hit by tapering and so those British companies with significant exposure to those regions underperformed the broader index. Standard Chartered (HKSE: 2888.HK – news) , for example, slumped 13.6pc to £13.60 and HSBC edged up just 2.4pc to 662.4p.
But the recovery in the UK economy helped others. Hopes that the advertising market would continue to strengthen as the economy improves lifted broadcaster ITV (LSE: ITV.L – news) 84.4pc to 194p. Reflecting the buoyant housing market, homebuilder Persimmon , up 54.9pc at £12.39, and builders’ merchant Travis Perkins , 72.1pc higher at £18.72, won promotion to the FTSE 100 in June.
However, it was the FTSE 100’s two airlines that recorded the largest individual gains in the index.
With a jump of 117.2pc to 401.4p, Brtish Airways-owner International Airlines Group was the biggest riser, boosted by the progress it has made in turning around Iberia, its Spanish business.
The introduction of allocated seating helped easyJet post record annual profits, and its shares leapt 100.7pc to £15.36, the second-best performing FTSE 100 company.