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Lengthy written off as a dinosaur of world markets, the FTSE 100 index has abruptly roared again to life, like one thing out of Jurassic Park.
It’s up 23.5% in six months and 16.4% yr to this point. And in the present day (6 October), it breached the 9,500 intraday barrier for the very first time.
Is 10,000 now firmly on the playing cards by the top of 2025? I wouldn’t rule it out given the blue-chip index’s robust momentum.
Counterintuitive
On one degree, this surge is considerably counterintuitive. In spite of everything, the UK economic system is hardly firing on all cylinders. And whereas most Footsie companies earn the majority of their earnings abroad, the worldwide economic system can be beset by tariff uncertainty and a really murky outlook.
In the meantime, France’s new prime minister Sebastian Lecornu simply stop unexpectedly after lower than a month. Fiona Cincotta, senior market analyst at Metropolis Index, was quoted by Reuters as saying: “The fact that the French Prime Minister has resigned adds to concerns around political and fiscal stability and more broadly in the UK and Europe.”
Once more, you wouldn’t know there have been any issues European indexes. France’s CAC 40 continues to be up 8% yr to this point, whereas Germany’s DAX 40 has surged almost 23%.
Spain’s IBEX 35 is not any laggard, with beneficial properties of 34.5% in 2025, earlier than dividends.
What’s occurring?
This makes extra sense once we take a look at what traders have been shopping for. Within the UK and Europe (which lack many Huge Tech and AI shares), they’ve largely been snapping up banks and defence shares.
UK banks have made a rip-roaring comeback after almost 20 years within the wilderness following the worldwide monetary disaster. A lot stronger stability sheets have enabled Footsie lenders to shrug off each Covid and the 2023 banking disaster with out elevating capital.
With elevated curiosity charges resulting in improved profitability, and charges seemingly staying larger for longer, traders proceed to pile in. HSBC (LSE:HSBA), Barclays, and NatWest are up 36%, 44%, and 36% this yr, respectively. In the meantime, Lloyds has surged round 54%!
Sadly, the rise in defence shares is self-explanatory because the Ukraine conflict rumbles on. A large improve in arms spending is about to occur throughout Europe over the following decade.
In response to this, Babcock Worldwide inventory has rocketed 158% yr to this point, whereas BAE Programs has superior 77%.
Is there any worth left?
From the six names talked about above, I personal shares of BAE and HSBC. However BAE seems a bit extremely valued to me, buying and selling at 27.5 this yr’s forecast earnings. The dividend yield is now simply 1.7%.
In distinction, I reckon HSBC shares nonetheless look first rate worth. They’re buying and selling at 10 occasions ahead earnings, whereas providing a good 4.9% yield.
One problem for HSBC is world commerce uncertainty. As an Asia-focused financial institution, HSBC is extra susceptible to tariffs and trade-related slowdowns within the area. That is an ongoing danger.
Nevertheless, as issues stand, HSBC is navigating all this effectively. It’s reducing prices, producing extra charges from rich purchasers, and not too long ago introduced a brand new $3bn share buyback programme. The dividend is roofed twice over by forecast earnings.
Lengthy time period, I stay bullish on HSBC’s progress prospects throughout Asia. If I didn’t have already got a decent-sized holding, I’d take into account shopping for the inventory in the present day, even with it close to a file excessive.
