Yet another record close for the FTSE 100 share index on Friday at 8,140, so not a bad week at all. It is exactly the sort of reassessment of the value the London market offers that I have expected, coupled with decent results from the big banks, especially NatWest.
But let’s not get too excited. The Footsie is still up only 5 per cent this year, and shockingly up only 10 per cent on five years ago. By contrast the S&P 500 index is up 7 per cent this year and 73 per cent over five years.
The equivalent numbers for the German Dax index are 8 per cent and 47 per cent. The London market remains fundamentally undervalued by world standards.
So what’s next? Well, I expect the value that London offers to be increasingly recognised, and feel more comfortable about my own target of the index hitting 8,500.
In terms of total equity markets, however, the world will continue to be dominated by the US. Microsoft, its most valuable firm, is worth $3 trillion (£2.5 trillion), and that is more than all the companies on the Footsie put together.
Record breaker: We need to build on this incipient recovery in UK equity prices so that more people get a share of the action
It reported good earnings this week, thanks to its investment in artificial intelligence, which seems to be coming off. But we still need the ‘old’ industries, the banks, energy firms, pharmaceuticals, miners and so on, and they are represented heavily on the London market.
Still, there are huge problems. One, at last being recognised, is that UK pension funds don’t put money into UK-quoted companies – they have been net disinvestors of equities for a quarter century. It is an issue we have highlighted in this newspaper and, while there is little hard evidence yet, I suspect that they will gradually rebuild their equity portfolios over the next few years. Besides, it’s a virtuous circle. The more the Footsie climbs, the greater the pressure on the institutions to put money into the market.
But that is only the start. Much more needs to be done. We have to work out why sophisticated investors put their money into private equity rather than public markets. What should the best investment opportunities be for the insiders, rather than the general saver? What is wrong with our governance system that it encourages firms to stay private?
Maybe we should require the regulators to take the wider public interest into account, rather than focusing on their own narrow, box-ticking procedures.
Take the Bank of England. In the second half of the last century one of its unstated functions was to promote the business of the City. It helped, for example, to found the Committee on Invisible Exports, which has now become TheCityUK, and that does support the financial services sector.
However, we need the authority of the Bank to push the best interests of the City, for it can talk to the Government in a way no trade body can.
I wonder why the interests of the City were not sufficiently represented in Brexit negotiations.
Or the Financial Conduct Authority. Look at the regulator’s website. It goes on about how it protects people with its warning list of unauthorised firms, people’s rights, scams and so on.
But while there is nothing wrong with that, the tone is mostly negative. I wonder whether the FCA should be given an explicit requirement to promote access to financial services, so that people who could benefit are encouraged to do so.
It talks about increasing competition in financial services, but one of the effects of its regulations on wealth managers has been to encourage consolidation of the industry because of the additional costs it imposes.
I suggest that the FCA should follow the Hippocratic Oath, in simplified form, namely ‘first, do no harm’, when considering everything it does.
The big point here is that we need to build on this incipient recovery in UK equity prices so that more people get a share of the action. The heady pace of the past few days may well fade. But it demonstrates the fundamental truth that steady investment in global equities will over a long period build real wealth.
