Can the FTSE 100 reach 8,000 points by Christmas? It really doesn’t seem like a year since fellow Fool writer Peter Stephens pondered the very same question.
Peter even said: “At the time of writing, a Brexit deal has still not been signed. The chances of a deal being agreed before the March 2019 deadline seem to be declining, with a no-deal Brexit perhaps now more likely than an agreement being signed between the UK and the EU.”
Plus ça change, eh?
Volatile year
In the 12 months since, the Footsie has maxed out at 7,727.5 points, dipped as low as 6,536.5, and at the end of last week stood at 7,207.2 points. The index of top UK stocks has suffered a dreadful five years, gaining only 5% — albeit with decent dividends, but still pretty poor overall.
And that only tells part of the story. The thing is, UK share prices, and therefore the FTSE 100, are of course denominated in sterling — and the value of the pound has taken a hammering as the likelihood of a no-deal Brexit followed by a recession has been increasing almost daily.
Worse than that
Over the same five years, the pound has lost 27% of its value against the dollar, which by my calculations puts the FTSE 100 down 23% in dollar terms. With most of the index widely international in nature and international business almost all done in dollars, that’s surely a truer reflection of the carnage that our government’s inept attempts to get us out of the EU have wreaked on the value of our top companies.
And to look at one specific example, Lloyds Banking Group shares have fallen 33% on the FTSE 100 over the past five years, but the bank’s equivalent dollar-denominated shares quoted on the New York Stock Exchange have lost 55% of their value.
Next few months
Could the Footsie climb in September and finally break the 8,000 barrier by Christmas? Yes, I really think it could. After all, it would only need an 11% rise, and fluctuations of that magnitude do happen reasonably often, especially in response to momentous events — and Brexit will be momentous.
With a deal, the FTSE should be pushed upwards by the improving prospects for our companies, but pulled back by the likely recovery in sterling. Without a deal, further weakening in sterling could push it up, against bearish sentiment pulling it down. Which forces will win out is anybody’s guess.
And if parliamentarians do manage to thwart the PM’s immediate plans, all bets could be off again, and this time next year another of my colleagues might be here writing: “It really doesn’t seem like a year since…“
Strategy
The important question is what to do about it all. My approach is to simply ignore it, and carry on with my SIPP investing. I’m looking at companies in their own rights, identifying those that I think will do well over the next decade, and paying special attention to those I see as seriously undervalued.
I’m looking for companies with reliable dividends, low debt and international diversification, which I think are priced too low. And you know what? I see lots of them, and I’m buying as if the market will soon close for the next 10 years.