FTSE rebound strongest in 25 years

Published on Wednesday 30 September 2009 21:53

LONDON'S blue-chip FTSE 100 index marked the best quarterly performance in its 25-year history last night despite taking a tumble at the final hurdle.

The benchmark index has gained almost 21 per cent since the beginning of July, the best performance for the Footsie since it opened in 1984.

However, analysts appeared split on whether the index will have moved much further from its current level by the middle of next year.

After touching a fresh year high, the Footsie finished the day down 0.5 per cent at 5,133.9, its progress dented by disappointing manufacturing and jobs data across the Atlantic.

Despite the end-of-session slump, the index is up about 15 per cent since the start of the year.

According to a poll of 20 or so strategists by news organisation Reuters, Britain's leading shares will be trading around their current 12-month highs at the end of 2009 and will see only a modest rise by mid-2010.

The quarterly survey, taken over the past week, gave median forecasts for the FTSE 100 to be at 5,150 by the end of this year.

Meanwhile, the index of top-flight firms from banks to miners to technology companies is seen lifting gently to 5,250 by the end of June.

Allan Collins, head of investment strategy at brokerage Redmayne Bentley, said: "A correction is overdue but this market doesn't look as if it wants to go down.

"Looking forward to next year we're not going to be raging bulls."

Darren Winder at Cazenove, who sees the Footsie at 5,500 by next June, added: "We are only now just beginning to see an improvement in credit markets and ultimately that is what will strengthen the recovery in 2010, so the full effects have yet to be felt."

The London market has rallied since March and recently pushed through the psychologically important 5,000 mark.

Better economic news of late – signalling the worst of the slump may be over – has been underpinned by government stimulus efforts, while a pick-up in takeover activity has also boosted confidence.

More investors are putting funds into shares in search of better returns, with interest rates at a record 0.5 per cent low, while quantitative easing is gradually improving the flow of money in the financial system.

But recent trading has been less certain as investors worry about whether the rally is sustainable.

And the market still has some way to go before it matches the 5,400 level it was trading at before the collapse of Lehman Brothers last year.

The Footsie's next best quarterly performance was in the closing months of 1999, as the market enjoyed the final days of the dot-com bubble, when it rose 14.9 per cent.

Richard Hunter, head of equities at stockbroker Hargreaves Lansdown, said: "Over the next few weeks, third-quarter earnings will gradually take centre stage. These results will have a major bearing on where markets go next."