It's onwards and upwards as markets hit an all-time high

Cathy Dixon

DESPITE all the uncertainty and downgrades to growth forecasts, the UK market is trading at all-time highs. At the time of writing the FTSE 100 is standing at 7830, up almost 1,000 points from the end of March, a rise of well over 13.5 per cent.

This dramatic recovery has not been mirrored elsewhere: neither the US or Europe has seen such a sharp rise to over the last two months.

As the UK languishes with one of the slowest economic growth forecasts, the market has been drawing strength from the weaker pound (especially against the US dollar). An increase in merger and acquisition activity, a steady upward creep in the oil price and a general warming to the UK in terms of global asset allocation.

The dollar surging to a five-month high does much to bolster the UK market given the number of companies that receive a high proportion of earnings in US dollars, helped by the news that the potential trade war with China now appears to be on hold, leading to a collective global sigh of relief.

There has been a notable uplift in takeover activity, a sure sign that there is perceived unrealised value to be taken advantage of. With the high profile GKN/Melrose deal recently having gone through, we have recently seen the FTSE 100 pharmaceutical company Shire agree a deal with Takeda and speculation is rife as to where the next takeover will be.

The oil price has been on an upward trajectory for the past year. In June 2017 it stood at around $45 a barrel, whereas now it is close to $80. Both the UK oil majors, Royal Dutch Shell and BP have reflected this, with the former seeing its share price at an all-time high and the latter climbing to levels not seen since the Mexican Gulf oil spill.

Other cyclical sectors have also seen substantial rises in their share prices over the last few months. So far investors have shrugged off any threat that a higher oil price may pose to economic growth. In the past a higher oil price has often contributed to higher inflation, but in the current economic climate with subdued inflationary prospects, this does not appear to be a concern.

Two months ago the UK equity market did seem to be languishing in comparison with other markets and in general investors were favouring other options, but as ever, this appears to have been an overreaction and the rebound has been strong.

At risk of sounding clichéd, perhaps we should remember the age-old stock market adage: “sell in May and go away…”

There are a great many profits to be taken and huge uncertainties remain ahead: some of the most difficult Brexit issues remain unresolved and although earnings have supported the rise in share prices, the rate of economic growth has been decidedly subdued.

Overall the UK faces an interesting few months ahead and this could well be reflected in the stock market.

:: Cathy Dixon is a director at the Belfast office of Cunningham Coates Stockbrokers, a trading name of Smith & Williamson Investment Management (SWIM). This article does not constitute a recommendation to buy or sell investments and the value of any shares may fall as well as rise. Investments carry risk and investors may not receive back the amount invested. The views expressed are those of the author and not necessarily of SWIM.

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