UK Stock Market FTSE 100 Continues Its Strong Performance
Despite numerous doomsday predictions made ahead of the Brexit referendum, the FTSE 100 has zoomed up to a 14-month high and is not far away from reaching 7,000 soon.
It is now 7 percent higher than what it was immediately before the referendum was held.
Since the Brexit vote, UK markets have been responding positively to the measures taken by the Bank of England (BoE) to ease monetary pressure and to the resultant weakened pound which has buoyed exports.
The central bank cut interest rates to 0.25 percent in early August and relaunched its quantitative easing program which it hopes will keep recession at bay. Experts believe that the central bank will roll out more measures later in the year.
Investment firm JPMorgan which had been one of foremost critics of Brexit has said that UK shares are now in a position to retain their preeminent position as an attractive option for international investors.The firm has said that three factors namely increasing commodity prices, improved exports and dropping bond yields are helping UK stocks. Equity strategist Mislav Matejka said that while Brexit negotiations may not be entirely smooth, the view of the firm was that continental equities would suffer more than UK stocks in case of further uncertainty.
UK stocks have also benefitted from a recovery in emerging markets since around a third of FTSE 100 companies’ revenue come from the region, as opposed to 20 percent for Germany’s DAX index and 10 percent for the US S&P 500.
Michael Hewson, chief market analyst at CMC Markets UK said that the recent lower-than-expected results from the US and China indicate that the growth in the global economy has slowed, prompting more central bankers to launch supportive policies. He stated that the pound was dropping as the policymakers in the BoE indicate that further easing measures could be announced.
Hewson pointed out that Andrew Haldane, the Bank of England’s chief economist was the latest senior policymaker who justified the need for intervention saying that jobs and growth was of primary important regardless of the impact on pension deficit, indicating that the easing program would continue.
The quantitative easing program from BoE is likely to result in lowering bond yields which would make FTSE 100 stocks remain attractive for investors worldwide. Dividend yields in the UK are at a high of 3.9 percent which is the highest for any major economy in the world.
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