FTSE 100 Reaches New Heights Amid UK Uncertainty

Britain's blue-chip stock index is trading near an all-time high, adding to gains for a gauge that managed to avoid last year's global selloff. This optimistic start to 2023 bodes well for the future of the stock market in Britain.

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The FTSE 100 Index rose by 0.6% on Wednesday morning in London, taking its year-to-date increase to 3.9%. The index is now just 1.7% away from its 2018 record high. Global shares have been lifted by hopes that cooling inflation will encourage central banks to slow interest rate increases, while China’s reopening has boosted sentiment.

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The UK benchmark has outperformed the Stoxx Europe 600 and the MSCI All-Country World Index over the past 12 months. The MSCI All-Country World Index slumped 20% last year, but the UK benchmark only fell by a few percentage points. This is due to the UK's strong economy and its ability to weather global economic storms. The FTSE 100 is still relatively cheap, trading at 10 times earnings expected a year from now. This is down from the 2020 high of 17 times. The MSCI All-Country World Index trades at 15 times forward earnings.

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Despite the ongoing economic turbulence caused by high inflation and a wave of industrial action, the FTSE 100 index has still managed to post gains. This is thanks to the index's exposure to buoyant commodity prices, a strong US dollar, and non-cyclical sectors like staple goods and healthcare. These sectors have proven to be relatively safe havens for investors during times of economic uncertainty.

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Berenberg strategists believe that UK shares will be resilient in the face of likely disappointing macro and earnings per share news in early 2023. They expect modest returns of up to 5% for UK stocks this year.

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Despite a strong showing in 2022, the FTSE has not been able to make up for its years as a laggard. In dollar terms, the benchmark is little-changed since 2016's Brexit referendum. Stocks with greater exposure to the domestic economy remain in the doldrums. The FTSE 250 index - whose firms earn about half their sales in Britain - is down 15% over the past 12 months.

The biggest contributors to the FTSE 100’s rise in 2023 include banks like HSBC Holdings Plc and commodities firms such as Shell Plc. Elsewhere, retailers appear to be turning a corner, lifted by strong performances by high street bellwether Next Plc and JD Sports Fashion Plc.