The financial world is, on the surface, abuzz this week as the FTSE 100 broke two records that have stood for over 15 years. On Tuesday, the FTSE 100 reached a new intraday high of 6,958.89 and also bettered its previous closing record by finishing the day at 6,949.63. While this is undoubtedly good news, undertones of uncertainty remain over what the repercussions of this success might be.
There is currently a great deal of talk about the strong tech start-up bubble that is forming around London. In 1999, Britain was in the peak of the dotcom boom, with telecoms and technology firms accounting for 23.4pc of the FTSE 100 index. However, that figure has now fallen to just 6.7pc. Nowadays, the index is dominated by raw materials: between them, the oil & gas and mining sectors account for 22pc of the FTSE compared with 15.1pc at the turn of the century. This shows that for a start, to compare the two periods is difficult due to the fact that the FTSE 100 is very different to the one in 1999.
But what does this new all-time high really mean for the real world? Guy Ellison, head of equities at Investec Wealth & Investment, said that the record is largely “symbolic” and that the London index is likely to kick higher in coming trading sessions. This was proved yesterday when the FTSE reached a new closing high of 6,949.73 – helped by a surge in the share price of the Asian focused bank Standard Chartered who announced the appointment of new Chief Executive, former JP Morgan investment bank boss Bill Winters.
Many will breathe a sigh of relief with the new records. As they have been so long in the making, the event holds great psychological significance, seeming to draw a line under the duel traumas of the dotcom bubble burst and the financial crisis. However this has led to speculation that the highs of the FTSE are a sign of a bubble, meaning that the burst might be around the corner. Peter Sullivan, head of European equity strategy at HSBC, said the new record “inevitably raises questions about how sustainable it is and whether it has got ahead of itself. Is this a sell signal? Absolutely not in our view.” Another reason why the 2015 high cannot be compared to 1999 is that the earnings picture is completely different. Sullivan adds that “earnings are 99pc higher than they were in 1999” meaning that we should be pleased and not worried that the FTSE is back to its best. Current earnings mean that we can start to worry when the index nears 10,000, which, according to Professors Elroy Dimson and Paul Marsh and Dr Mike Staunton of London Business School, has a 50pc probability of happening by the end of 2022 and a 50pc chance it will take longer.