London’s blue-chip index hasn’t just broken through the 8,000 barrier for only the second time ever, it has smashed it racing past the 8,400. This is terrific news as most of us have exposure to the FTSE’s fortunes, either through our company and personal pensions, and stocks and shares Isas.
It is particularly good news for pensioners who have put their retirement pots into drawdown, as this will boost their value and allow them to take more income.
Yes it may also come as a shock for Britons who gave up on UK shares and sought their fortunes on foreign bourses.
Lately there has been rumours of the death of the UK stock market, as British giants like Shell consider listing on Wall Street to take advantage of higher valuations stateside. Today, those reports look exaggerated.
UK shares have struggled since the financial crisis, when the Britain paid dearly for its over-reliance on banking stocks.
The chaos and controversy surrounding Brexit didn’t help. Neither did pandemic lockdowns and the cost-of-living crisis.
The FTSE 100 is mostly made up of old school companies in slow-growing, established sectors like financials, energy, mining and defence.
They may not offer as much growth, but they do play plenty of income.
The FTSE 100 offers of some of the most generous dividends in the world, with some stocks yielding income of 6 percent a year or more, far more than US counterparts.
Finally, they’re delivering some growth, too.
Foreign investors have finally woken up to just how cheap UK stocks are, trigging a “bidding bonanza”, said Chris Beauchamp, chief market analyst at online trading platform IG. “Even with the FTSE 100 at a record high, UK stocks look cheap compared to their US cousins and traders are piling in.”
FTSE 100 shares are valued at around 12.4 times earnings. US stocks listed on the S&P 500 trade at 33.95 times earnings, almost three times as much.
Inflation now looks set to fall faster in the UK than the US, allowing the Bank of England to cut interest rates sooner, possibly next month.
That will ease the pressure on consumers and businesses, and give the economy and stock market another lift.
Investors are increasingly optimistic as the UK pulls out of recession, said Jason Hollands, managing director of investment platform Bestinvest, who added: “And it’s high time, too.”
Pension and Isa savers who check their portfolios should see the difference, according to new research from PensionBee.
It found the value retirement pot jumped by 16 percent over the last year, from £17,379 in March 2023 to £20,077 in March this year.
Pensioners tend to have bigger pots, and will have done even better from the stock market resurgence.
This is particularly good news for those in drawdown, who rely on a growing stock market to boost the value of their capital and the amount they can take in income.
Unfortunately, many British investors will have missed out on the UK recovery.
Figures from Hargreaves Lansdown show that not a single one of the top 10 best-selling stocks and shares Isa funds invests in the UK. Instead, names like Jupiter India, Artemis Global Income and Baillie Gifford American dominate.
Head of investment analysis and research Emma Wall said UK investors are slowly waking up to the domestic resurgence, but it’s not the only country doing well. “This year, stock markets in the UK, Japan, India and US have all recorded new all-time highs.”
The UK isn’t the only stock market doing well but it is the most surprising, given the gloom at home.
Investors could take advantage by buying a simple tracker fund, like the iShares Core FTSE 100 UCITS ETF.
For those who prefer actively managed fund, Hollands highlights Fidelity Special Values, Mercantile Investment Trust and Murray Income Trust.
Investing in shares will always be risky than leaving money in cash, but it is typically more rewarding in the longer run.
After a tough decade, UK shares are fighting back. We should all cross our fingers and hope the recovery continues.
