The FTSE 100 has had a strong year, rising from around 7,120 at the start of January. But its advances have not been as impressive as in 2016, when a dramatic fall in the value of the pound in the immediate aftermath of the Brexit vote sent stocks rallying sharply. It ended 2016 at a record high too.
The index generates a significant chunk of its revenues abroad, meaning that a weak pound tends to benefit it. This year, sterling has regained its footing somewhat. In 2016 the index enjoyed gains of around 14 per cent. This year it has risen around 7 per cent.
Nonetheless, some companies on the index have performed impressively. Shares in mining company Antofagasta are up by close to 50 per cent for the year and Glencore shares have added more than 40 per cent in value. Beyond the commodities sector, shares in payment provider Worldpay increased by an impressive 57 per cent over the past 12 months, spurred by a multi-billion pound takeover by US rival Vantiv.
Looking ahead, analysts and economists largely agree that the direction of the pound will dictate the health of the FTSE 100 in 2018 and that sterling’s fate will largely depend on the success of Brexit negotiations.
“If Brexit talks regarding a trade deal start to go better, then the pound may keep on rising, which will not be good news for those international stocks in the premier index,” said Chris Beauchamp, chief market analyst at IG.
Laith Khalaf, a senior analyst at Hargreaves Lansdown agrees.
“A good Brexit is probably a mixed blessing for investors in the UK stock market, because it would likely lead to a rally in the pound which would see the share prices of the big international companies pared back,” he said.
Richard Stone, chief executive of stockbroker The Share Centre, said that based on the strength of the FTSE 100, there have been some concerns that a correction could be on the horizon. Nonetheless, he remains optimistic.
“Higher global growth forecasts, a continuation of relatively relaxed monetary policy and a loosening of fiscal policy specifically in the United States are all helping support equities,” he said.
The pound was trading around $1.35 on Friday having started the year around $1.23.
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