BLOG: What next for the FTSE 100?
A cocktail of macro events has emerged to shake global markets and 2016 has seen some unprecedented challenges which left has the FTSE 100 down 8 per cent since the start of the year.
The FTSE 100 is falling victim to a profound loss of confidence from investors in the global markets. Plunging oil prices and China’s transformation from industrial power house to a consumption based economy are both likely to ensure that the macro outlook will remain difficult for the foreseeable future. Investor concerns were only heightened last week when The Fed’s Janet Yellen confirmed global growth is looking uncertain.
At home the UK is sadly no safe haven at the moment. Currently the FTSE 100 is too dependent on those mining and banking stocks which overly rely on a strong global economy. Caution is advised when considering investment in the banking sector. On the upside, as an industry, no one should doubt that the banks are behaving more sensibly than they were, partly as a result of increased regulation and media scrutiny. However, the banking industry still lacks real transparency and in many ways is still relatively opaque in how it conducts business.
Despite this we mustn’t confuse 2016 with 2008. We remain hopeful that this isn’t the next financial crisis and how the banks have acted will determine whether or not this is the case. Today the banks are much better behaved than in 2008 and if anything have been hoarding more money than they have been spending since the last crash.
The FTSE 100 is always going to be susceptible to volatility given the international make-up of the benchmark. There are, however, plenty of opportunities within more defensive sectors such as Consumer Goods and Utilities. We also think given the weakness seen in a lot of the more cyclical stocks there may be some interesting opportunities presenting themselves.
The future for the FTSE 100 remains uncertain. There certainly seems to be no end to the oil price drop or a stronger outlook on the horizon for China and, with this all in mind, the importance of a long term outlook will be necessary. Volatility is nothing new for the FTSE 100 and we’re in a better position than before the last financial crash, but right now this is undoubtedly a tricky time for UK plc.
Colin Morton is portfolio manager of the Franklin UK Equity Income fund