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The FTSE 100 hitting 10,000 is a psychological milestone reasonably than a basic turning level. Nonetheless, it says loads in regards to the market backdrop. After years of lagging the US market, the UK’s blue-chip index has benefited from easing inflation, falling rate of interest expectations, and a gentle restoration in danger urge for food.
It’s additionally value remembering what the FTSE 100 truly represents.
The index is dominated by international companies in vitality, mining, shopper items, and financials, with the vast majority of revenues earned abroad. A weaker pound over time, mixed with resilient commodity costs and robust money technology, has supported earnings development even when the home financial system has struggled.
That’s not the one issue pushing the index upwards. Banks have been an enormous development driver over the previous two years. Banks now signify the second, ninth, eleventh, fourteenth, and eighteenth-largest corporations on the index.
For buyers, the transfer to 10,000 doesn’t imply something significantly noteworthy. Clearly, it does recommend that these uncovered to the index can have seen their wealth enhance accordingly.
Is the index nonetheless low-cost?
A recurring theme in recent times is that the FTSE 100 has appeared low-cost in contrast with US shares. There have been a number of causes for this, many tied to the UK’s weaker financial outlook and political uncertainty — though roughly 70% of FTSE 100 revenues are generated abroad. One of the essential, and sometimes missed, elements has been liquidity.
The US fairness market is solely much more liquid. American pension funds, ETFs, and retail buyers persistently channel capital into home shares, creating deep swimming pools of demand. In contrast, UK equities have confronted persistent outflows, as pension schemes de-risked and international funds underweighted London in favour of New York.
In brief, UK shares look cheap versus friends within the US. Banks are a first-rate instance of this. Nevertheless, there’s been a major change in how a lot the market is keen to pay for British corporations. That’s needs to be seen as a optimistic as a vibrant capital market is nice for nearly everybody. Optimistic sentiment may even result in extra listings.
One to observe
Any shares buyers needs to be watching as we transfer into 2026?
I imagine Melrose Industries (LSE:MRO) stays some of the enticing and missed shares on the index.
Via GKN Aerospace, the group is a Tier 1, sole-source provider of crucial engine and structural parts to all main international producers — a place constructed over a long time and very troublesome to copy.
At present, its know-how options on round 90% of lively industrial and navy engines, with roughly 70% of revenues coming from long-term contracts the place it’s the unique provider. This provides it pricing energy.
Regardless of this, the valuation stays modest. Shares commerce at round 15.1 instances ahead earnings, with a price-to-earnings-to-growth ratio of simply 0.8. That’s a transparent low cost to friends comparable to Rolls-Royce, GE Aerospace, and Safran. The enterprise additionally advantages from a resilient aftermarket, which delivers high-margin income even throughout trade downturns.
Web debt of about £1.67bn is the important thing danger, however with sturdy money technology and bold development targets by way of 2029, I believe buyers ought to think about Melrose Industries.
