Picture supply: Getty Photographs
Lengthy written off as a dinosaur of world markets, the FTSE 100 index has all of the sudden roared again to life, like one thing out of Jurassic Park.
It’s up 23.5% in six months and 16.4% 12 months up to now. And as we speak (6 October), it breached the 9,500 intraday barrier for the very first time.
Is 10,000 now firmly on the playing cards by the top of 2025? I wouldn’t rule it out given the blue-chip index’s sturdy momentum.
Counterintuitive
On one stage, this surge is considerably counterintuitive. In spite of everything, the UK financial system is hardly firing on all cylinders. And whereas most Footsie corporations earn the majority of their income abroad, the worldwide financial system can be beset by tariff uncertainty and a really murky outlook.
In the meantime, France’s new prime minister Sebastian Lecornu simply give up unexpectedly after lower than a month. Fiona Cincotta, senior market analyst at Metropolis Index, was quoted by Reuters as saying: “The truth that the French Prime Minister has resigned provides to issues round political and financial stability and extra broadly within the UK and Europe.”
Once more, you wouldn’t know there have been any issues European indexes. France’s CAC 40 continues to be up 8% 12 months up to now, whereas Germany’s DAX 40 has surged almost 23%.
Spain’s IBEX 35 is not any laggard, with positive aspects of 34.5% in 2025, earlier than dividends.
What’s happening?
This makes extra sense once we take a look at what buyers have been shopping for. Within the UK and Europe (which lack many Huge Tech and AI shares), they’ve largely been snapping up banks and defence shares.
UK banks have made a rip-roaring comeback after almost twenty years within the wilderness following the worldwide monetary disaster. A lot stronger stability sheets have enabled Footsie lenders to shrug off each Covid and the 2023 banking disaster with out elevating capital.
With elevated curiosity charges resulting in improved profitability, and charges seemingly staying increased for longer, buyers proceed to pile in. HSBC (LSE:HSBA), Barclays, and NatWest are up 36%, 44%, and 36% this 12 months, respectively. In the meantime, Lloyds has surged round 54%!
Sadly, the rise in defence shares is self-explanatory because the Ukraine warfare rumbles on. A large improve in arms spending is ready to occur throughout Europe over the subsequent decade.
In response to this, Babcock Worldwide inventory has rocketed 158% 12 months up to now, whereas BAE Techniques has superior 77%.
Is there any worth left?
From the six names talked about above, I personal shares of BAE and HSBC. However BAE appears a bit extremely valued to me, buying and selling at 27.5 this 12 months’s forecast earnings. The dividend yield is now simply 1.7%.
In distinction, I reckon HSBC shares nonetheless look first rate worth. They’re buying and selling at 10 occasions ahead earnings, whereas providing an honest 4.9% yield.
One problem for HSBC is world commerce uncertainty. As an Asia-focused financial institution, HSBC is extra susceptible to tariffs and trade-related slowdowns within the area. That is an ongoing danger.
Nonetheless, as issues stand, HSBC is navigating all this nicely. It’s reducing prices, producing extra charges from rich purchasers, and just lately introduced a brand new $3bn share buyback programme. The dividend is roofed twice over by forecast earnings.
Lengthy time period, I stay bullish on HSBC’s development prospects throughout Asia. If I didn’t have already got a decent-sized holding, I’d think about shopping for the inventory as we speak, even with it close to a file excessive.
