Having started the year at around 7,650 points, many investors probably felt that reaching 8,000 points would be a formality for the FTSE 100 in 2018. After all, it equates to a rise of less than 5%.
The reality, though, has been somewhat different. The index now trades at around 6,800 points, which represents a fall of 11% during the course of 2018. Now, most investors seem to be fearing further falls, rather than considering the growth prospects which could be on offer.
As history shows, the best time to buy stocks can be when they are trading at lower levels. With that in mind, here are three reasons why the FTSE 100 could have investment appeal, and why it could reach 8,000 points in 2019.
Growth potential
While there are fears surrounding the growth prospects of the world economy, it is still forecast to post GDP growth of 3.7% in 2019. This would represent a sound overall performance at a time when there are risks facing its future. For example, the prospect of a full-scale trade war and further interest rate rises in the US could hold back investor sentiment to some degree. But the reality is that there are always risks facing investors, and the fundamentals of the world economy appear to be sound, judging by its growth forecasts.
Since around 70% of the FTSE 100’s income is generated outside of the UK, the index could be a worthwhile means of gaining access to the growth potential of the world economy.
Value
The FTSE 100 is trading at a lower level than it was nearly 20 years ago. To put that into perspective, back then people were not concerned about Brexit, but rather the Millennium Bug was the major worry. Whether Brexit also turns out to be a ‘damp squib’ is unknown, but the value of the UK’s main index appears to be reflective of the risks faced by the economy.
In fact, following its fall in 2018, the FTSE 100 now has a dividend yield which is approaching 4.5%. That is historically high, and such a level has rarely remained in place over the medium term. Even if the index increases in value to 8,000 points, it would still yield a relatively attractive 3.8%.
Track record
Although the FTSE 100 traded higher than its current level in 1999, its track record shows that it has always recovered from any downturn to post new all-time highs. As a result, after reaching a record 7,877 points in 2018, it seems very likely that it will be able to surpass that level and move to over 8,000 points.
Given the favourable trading conditions that are expected to be provided by the world economy this year and the growth potential across a number of its major constituents, it would be unsurprising for 2019 to be the year that the index finally crosses 8,000 points for the first time.