LONDON (Reuters) – Britain’s top share index looks set to reach record highs in 2014, spurred on by a robust economy and a stabilization of heavyweight mining companies which suffered hefty falls this year, according to a Reuters poll.
The FTSE 100 was forecast to hit a new all-time high of 7,100 by end-2014 – some 9 percent up on Wednesday’s close of 6,507 – according to the median in a survey of over 60 traders, analysts and fund managers conducted in the past week. The index is up around 10 percent so far this year.
By mid-2014, the FTSE, which has already climbed over 10 percent this year, is anticipated to be at 6,820, just 150 points shy of the current record high reached in 1999.
An improving domestic economy should help drive gains on the benchmark, which is gradually ceding a dominance of miners geared to Chinese growth to firms more focused on Britain.
“With the strength of the UK economy, domestic stocks will be bolstered… and will push the FTSE higher throughout the course of the year,” Mike McCudden, head of derivatives at Interactive Investor, said.
A buoyant housing market, improving consumer confidence and rising employment have made Britain one of the fastest-growing advanced economies, with the euro zone on course to expand at less than half Britain’s rate next year, a recent Reuters poll showed.
MINING DECLINE TO STABILISE
London-based Vedanta Resources was demoted from the blue-chip FTSE 100 on Wednesday, the third miner to drop out of the index this year.
But the remaining influence of the miners – which have seen their share in the FTSE 100 fall to around 7 percent, from 9 percent in February but are still one of the biggest sectors – should benefit from signs of stabilization in China.
Concern about demand from the top metals buyer saw miners plunge nearly 20 percent this year, the worst hit stocks on the FTSE by some margin, but less negative earnings expectations signal brightening prospects for the sector.
A drive to tackle falling demand for metals with spending cuts by companies like BHP Billiton and Rio Tinto , was also seen helping the shares.
“As long as China is steady as she goes, then mining companies could do alright,” said Nick Xanders, head of strategy at BTIG.
“They are trying to become more efficient and selling off non-core assets so I think that there is a scenario where these guys could outperform.”
Still, Thomson Reuters data show the FTSE is currently trading at a 12-month forward price-to-earnings ratio of 12.49, higher than its 5- and 10-year average, meaning British stocks are relatively expensive.
(Additional reporting by the London markets team and Hari Kishan in Bangalore Editing by Jeremy Gaunt)