Value Investing Returns to British Bourses
The UK all-share index, the FTSE 100 whipsawed wildly in 2017. Brexit-related pressures have impacted trading activity in UK companies. The most notable development in 2017 was the rather stable performance of the GBP/USD pair. The cable is currently trading around the 1.3364 level, and has been hovering around the 1.32+ level since September 2017. The stability of the GBP is mirrored on the recent performance of the FTSE 100 index which reveals a steady appreciation since the start of the year. Over the course of the year, the FTSE 100 Index has appreciated by 7.42%, with a 52-week trading range of 7,060.85 on the low end and 7,614.40 on the high end.
Inflated Valuations on UK Bourses
During 2017, there were some notable developments with the UK stock market. For example, multiple companies were trading at inflated valuations while others were trading at steep discounts. This ‘divergent paradigm’ within the UK investment sector provides plenty of investment opportunities to traders. Brexit pressures are changing the way that traders perceive UK bourses, with several traders preferring to abandon UK markets entirely. However, there are those investors who are now piling back into the UK markets – sensing opportunities in the markets. UK interest rates are also at historic lows, enticing further investment in the country.
Currently, UK interest rates are at 0.5%, up 25-basis points. This bodes well for investors with money in fixed interest-bearing accounts. If analysts are correct, we could see another rate hike of 25-basis points by 2020 taking place. Regardless, the era of historically low interest rates is likely to continue over the short-term. This means that borrowing costs and investment financing will be affordable in the UK. The borrowing rate on personal loans will now be somewhat higher with the base rate up at 0.50%. Unsecured borrowing rates, aka personal loans and other lines of credit will be more expensive. UK households will feel the pinch with increased borrowing rates. Since the June 23, 2016 Brexit vote the value of the GBP has become attractive to foreign investors. The fall in the GBP from 1.48 to its current level is good for UK firms operating abroad. The revenue streams generated by these companies overseas are worth more in GBP terms when the funds are converted.
Strong Growth Sectors on the FTSE 100 and FTSE 250
During the course of the year, investors benefited from trading UK shares. For starters, the FTSE 100 index increased by 5%. The FTSE 100 also reached an all-time high during the year. The UK-based FTSE 250 index also rose by some 12%. Among the best-performing stocks on the UK indices were the following:
- Lloyds Banking Group – this bank stock surged during the year. This bank stock has been largely immune from the Brexit-related risks faced by UK stocks. Thanks to the 25-basis point rate hike, Lloyds Banking Group will continue to benefit moving forward.
- Mining Stocks – these stocks have generally rebounded strongly in 2017 owing to weakness in the GBP. With many of these companies established abroad, companies like Anglo American, BHP Billiton and Rio Tinto have seen sales figures improve as the funds are repatriated back to the UK into GBP.
- UK Oil and Gas stocks – surged strongly in 2017 as share prices spiked 120% as interest in fracking activity ballooned in UK markets. Sirius Minerals is another example of a company that has enjoyed strong gains for the year, already up 21%.
These are some of the many strongly performing stocks in the UK financial markets. 2018 is likely to see renewed interest in Brexit negotiations and the strategic blueprint for Brexit that UK and EU negotiators can agree to.
What were some of the best performing stocks in your financial portfolio in 2017? What stocks do you feel will be stellar performers in the New Year?
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About Brett Chatz
Brett Chatz is a graduate of the University of South Africa, and holds a Bachelor of Commerce degree, with Economics and Strategic management as his major subjects. Nowadays Brett contributes from his vast expertise in online trading for spreadbettingreview.co.uk.