Cast your mind back to the end of the last millennium and the dotcom boom. Companies were floating on the stock market left, right and centre, often with very little in the way of sales, let alone profits. It was “a new paradigm”, according to Lastminute.com’s Martha Lane Fox. But Lastminute’s flotation in March 2000 proved to be almost the last hurrah and the FTSE 100, which reached a peak of 6930 at the end of December 1999, went tumbling the following year. Boom became bust.
Thirteen years later, the FTSE 100 is once again in sight of those all-time highs (see graph), and flotation fever is back. The index came within 65 points of its record last week, before investors had a mild attack of nerves.
Stock markets have been supported by the wall of money thrown up by central banks, notably the US Federal Reserve, in their efforts to keep the global economy from slipping into the abyss. So far those efforts seem to be working. And with signs of optimism about global growth, including recent positive data from China, the US, UK and even the troubled eurozone, most observers believe 2014 will see yet new peaks for shares. UBS and Killik, for example, are forecasting the FTSE 100 will reach 7400 by the end of the year, while Citigroup reckons it could break through 8000.
Even the prospect of an end to central bank stimulus does not seem to hold as much fear as it once did. The US Federal Reserve began trimming, or “tapering”, its bond-buying programme last month, cutting the monthly purchases by $ 10bn to $ 75bn, but the market took the news in its stride.
Philip Shaw at Investec said: “Stock markets are no longer fazed by Fed tapering. Indeed, the S&P 500 has hit repeated highs since the Fed announced a reduction in its asset purchase programme on 18 December.”
And with bond yields low, interest rates at virtually zero and precious metal prices plunging, there are few options other than the stock market for investors seeking a home for their cash.
That pool of cash seeking a home will be boosted in March when some £50bn is returned to Vodafone investors following the sale of the mobile phone group’s stake in US joint venture Verizon Wireless.
So it is not surprising this buoyant mood has encouraged company owners – from family businesses to private-equity-controlled firms to the UK government – to join the rush to market. Last year 105 companies joined the main market and the smaller Aim, the largest number since 2007, raising a total of £15.7bn between them. Esure, Foxtons, Merlin Entertainments and – of course – Royal Mail are all recent arrivals and the pipeline of flotations is growing by the day.
But it may not all be plain sailing. The ending of central bank stimulus, when it finally comes, could prove more disruptive than expected, especially for emerging markets. Currency problems in Argentina could have a knock-on effect elsewhere, while there is always room for disappointment if global growth fails to meet expectations. A potential housing bubble in the UK could be storing up problems for the future.
Geopolitical concerns too should not be underestimated, whether regarding Syria, Iran or even Japan, whose prime minister Shinzo Abe raised the prospect in Davos last week of a possible conflict between his country and China. But for the moment, the bulls are in the ascendancy and private businesses are riding the wave. Just be cautious if anyone uses the phrase “new paradigm”.