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FTSE 100 set for happy new year


The FTSE 100 index of leading shares is expected to break the 7000 barrier in 2014

The FTSE 100 index of leading shares is expected to break the 7000 barrier in 2014

The FTSE 100 index of leading shares is expected to break the 7000 barrier in 2014

Britain's leading share index is on course to end 2013 around 14% ahead, fuelling expectations that it will reach a record high in the year to come.

The FTSE 100 Index was near to 6730 on the penultimate day of December trading, more than 800 ahead of its level of 5897.8 at the end of 2012.

Economists and investors predict it is likely to reach an all-time closing high over the next 12 months, breaking through the 7000 barrier during 2014.

The index set a record of 6930.2 during the dotcom boom more than a decade ago, on December 30 1999.

This year, shares have been boosted by major stimulus policies which have kept interest rates and yields on government bonds low, leaving investors to seek better returns in the equities market.

But the comparison is not straightforward because company dividends paid out on these shares have not grown at the same pace.

The FTSE 100 has risen strongly over the last 12 months as the UK economic recovery has accelerated well ahead of expectations.

More importantly for the internationally-focused index, prospects for the United States and the rest of the world have also been also looking up.

British Airways and Iberia owner International Airlines Group has done the best, more than doubling in value, with low-cost rival easyJet also rising nearly 100%.

The top flight neared its record high when it closed at 6840.3 points at the close on May 22 this year, but has since been weighed down by anxieties about the ending of the US Federal Reserve's unprecedented package of stimulus measures.

An announcement finally came earlier this month that the Fed would start paring back its programme of quantitative easing (QE) - which has been pumping 85 billion US dollars (£52 billion) into the world's biggest economy every month.

But a pledge that interest rates would remain low longer than expected helped markets react positively - alongside the knowledge that the "tapering" would still see massive monthly asset-buying continue, albeit at the lower level of 75 billion US dollars (£46 billion).

Despite its gains this year, the FTSE 100 has underperformed compared with its peers in developed markets, which have seen increases of around 20%.

Analysts at Capital Economics say this is partly because of the composition of the index, which includes a large proportion of volatile commodities stocks such as mining companies.

These have been among the losers this year, with Fresnillo down nearly 60%, and Randgold Resources and Antofagasta losing more than a third in value.

But a better performance is expected next year amid a slower fall in commodity prices, a weakening pound and an upturn in UK productivity - with companies able to use spare capacity not needed during the recession to boost profits.

Capital Economics is predicting the FTSE 100 to climb as high as 7500 by 2015.

And a poll of fund managers by the Association of Investment Companies found 58% believed the index would finish above the 7000 mark.

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