Many investors have abandoned FTSE shares altogether, preferring to pile into red hot US technology stocks instead. Even Brits have been reluctant to buy UK shares, but there are reasons why that may now change.
Cast your mind back to Millennium Eve, December 31, 1999. Investors ended the 20th century in a buoyant mood, driving London’s benchmark FTSE 100 index to an all-time high of 6,930.
The dot-com boom was in full cry making overnight fortunes for lucky investors, as the share prices of companies like Lastminute.com went berserk.
It all came crashing down within three months, smashed by the dot-com crash of March 2000, the 9/11 terror attacks on September 2001 and the Iraq war in March 2003. That month, the FTSE 100 bottomed out at 3,287, having lost half its 1999 value in just over three turbulent years.
Since then it’s been hammered by the 2008 financial crisis, the 2011 eurozone meltdown, Brexit, the Covid pandemic, war in Ukraine and the cost-of-living crisis.
At time of writing the FTSE 100 trades at 7,515, a rise of just 585 points since the start of the Millennium. That’s a rise of a meagre 8.4 percent in 23 years.
In practice, investors have got a better return than that, for two reasons.
First, few will have put all their money into the market right at the top. The vast majority will have invested at much lower levels.
Second, FTSE 100 companies pay some of the most generous dividends in the world, boosting the total return once included in the calculations.
Fund platform IG says the FTSE 100 grew 23 percent in the 10 years to December 31, 2022. With all dividends reinvested, the real total return was a more impressive 84 percent.
It’s still not great, though.
Last year, the FTSE 100 grew just 2.3 per cent, with a total return of 6.5 percent including dividends.
It badly trailed US benchmark the S&P 500, which grew a thumping 25 percent, turbo-charged by the so-called Magnificent Seven technology stocks, Apple, Microsoft, Amazon, Google, Nvidia, Facebook-owner Meta and Tesla.
No British company can compete with those trillion-dollar mega-caps, although Rolls-Royce shares gave it a good go.
UK shares have been forgotten, overlooked, hated, ignored and despised, but they have one thing in their favour. They’re incredibly cheap as a result.
The average S&P 500 stock is now valued at more than 32 times earnings. Typically, a valuation of 15 times earning existing as fair value, so that’s pricey.
UK shares trade at less than nine times earnings, which is cheap. Basically, they’re on sale, and bargain hunters are waking up to the opportunity.
Wall Street investment bank Goldman Sachs is now backing our stock market to outperform US and EU benchmarks.
It reckons UK shares will deliver a return of nine percent in 2024, beating the S&P 500, leading eurozone markets and Japanese stocks.
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Goldman Sachs says the UK will continue to beat most rival asset classes for the next five years.
This is yet more good news and follows predictions that UK energy bills, inflation and interest rates will all fall sharply by the spring.
That could put a rocket under the UK stock market, lifting investor confidence, easing the pressure on businesses and encouraging consumers to spend more.
Goldman Sachs said the FTSE 100 could also get a major massive boost from an unlikely source: Donald Trump, who looks a dead cert to be Republican party candidate in this autumn’s US presidential election.
FTSE 100 companies generate around half of their profits and dividends from operations in the US, and these will benefit if Trump wins and fires up the stock market by slashing taxes.
Trump has threatened to impose tariffs of 10 percent on imports, but this will hit EU companies far harder than their UK counterparts, Goldman Sachs says.
The UK market looks set to recover regardless of what happens in the US election, and it’s about time too. We’ve all waited long enough.
