It has been a quietly impressive year for London’s blue chips. While American markets remain entranced by the capricious charms of big tech, the FTSE 100 has advanced steadily, not spectacularly, propelled by miners, banks and a dose of good old-fashioned dividend discipline.
With the index flirting with record highs, the notion that it could breach the 10,000 mark by Christmas no longer seems fanciful.
Investors, weary of Washington’s fiscal brinkmanship and uncertain over the Federal Reserve’s next move, are diversifying away from the dollar and the Nasdaq’s frothier names. UK equities, long the wallflowers of global portfolios, suddenly look attractive.
The FTSE trades on a modest 14.3 times earnings — far below the S&P 500’s 22.6. As Neil Wilson of Saxo UK puts it, “Valuation still matters; for the first time in a decade, investors are being paid to care about price again.”
Yield and resilience
The income story is compelling. The FTSE 100 offers the richest dividend yield among developed markets, a comfort in an era where investors are again counting the pennies. In a world of uncertain growth and sticky inflation, cash returned to shareholders is worth more than distant promises of revenue expansion.
The structure of the index itself plays to current tastes. Miners, defence contractors, drinks firms and tobacco companies dominate — a cohort that may lack glamour but boasts balance-sheet strength, pricing power and reliable cash flow.
The composition lends the FTSE a defensive resilience missing from more tech-heavy indices. In a world rediscovering inflation and industrial policy, such old-economy virtues have become fashionable again.
A curious advantage in weakness
Sterling’s softness, and Britain’s own fiscal travails, perversely add to the attraction. A weaker pound inflates overseas earnings when translated back into sterling, while the country’s political pantomime deters foreign capital from the gilt market, leaving equities as the least ugly option in the UK asset class beauty contest. That irony is not lost on fund managers who have spent years underweighting Britain.
Global tensions are also doing their bit. Rising defence spending, particularly in Europe, has energised the likes of BAE SystemsLON:BA.. Commodity producers benefit from renewed demand for metals tied to the energy transition and artificial-intelligence infrastructure. Pharmaceutical firms, led by AstraZeneca LON:AZN, have found favour again amid fresh US licensing deals and renewed interest in defensive healthcare earnings.
Add in a dose of geopolitical anxiety — the kind that drives investors towards sturdy, dividend-paying blue chips — and the case for the FTSE strengthens further. The combination of cyclical exposure, value bias and cash generation looks well suited to a “higher for longer” rate environment.
Is 10,000 a plausible milestone however?
All told, London’s equity market stands at an unusual intersection of value, yield and macro resilience. There is no mania here, merely a steady recognition that relative cheapness and steady income can be virtues in uncertain times. The FTSE 100 need rise only a few more percentage points to claim the psychological 10,000 mark.
Wilson notes, “The market doesn’t need euphoria — just a continuation of what’s already working.” Should that steady rhythm hold through the year’s final quarter, Britain’s unloved benchmark might yet deliver a festive surprise.
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