FTSE 100 posts record quarter.jpg

FTSE 100 posts record quarter

By BILL BLEVINS [email protected]

Bill Blevins is the Managing Director of Blevins Franks. He has specialised in expatriate investment and tax planning for over 35 years. He has written books and gives lectures on this subject in Southern Europe and the UK.

What a difference six months can make. Back at the end of March, the economic outlook still looked very bleak and while the UK stockmarket had recovered from the sharp fall at the end of February, few would have predicted then that it would continue to storm ahead.  

Growth has now returned to the world economy, according to the International Monetary Fund (IMF)’s twice yearly World Economic Outlook, published on October 1.

The IMF’s chief economist, Olivier Blanchard, said that it showed that “the recovery has started, financial markets are healing, and in most countries growth will be positive for the rest of the year as well as in 2010”.

The IMF also dismissed fears of a double-dip recession, but it did point out that the recovery will probably be “weak by historical standards”.

The FTSE 100 is a prime example of how financial markets are “healing”.

Over the third quarter of the year, the index posted its best quarterly return in 25 years.  Although it dipped on September 30, it gained 20.8 per cent since July 1, rising 885 points to 5,134.

Stockmarket historian, David Schwartz, said that “this is the biggest quarterly rise in the stockmarket since the FTSE 100 index was created in 1984 and probably the second biggest in modern times”.  

Since its low in March, the FTSE 100 hardly paused to look back. It rose a very impressive 46 per cent between March 3 and September 30, posting gains every month except June.  

Since the beginning of the year it rose 16 per cent – a feat many would have considered unimaginable in the dark days of February and March.

The performance has exceeded many expectations.  A Reuters’ poll of market strategists in June forecast the index would end the year at 4,600. Its latest poll, taken in the last week of September, now forecasts the FTSE will close at 5,150 by the year end.

The market has been buoyed by recovery hopes and the rally led by a strong demand for financial and mining stocks, which investors believe are best placed to benefit from the economic recovery.  Shares have outperformed bonds, cash and property this year.

UK shares are not the only ones which have performed well, with prices rising throughout the world.  For example, the US S&P 500 climbed 56 per cent since its March low, including 15 per cent over the third quarter.  Overall, it was up 13 per cent at the end of September compared to the start of the year.

The questions potential new investors are now asking are whether they have missed the rally and if there is any point in investing now.  They have unfortunately missed the boat on the March-September rally but, depending on their investment objectives, could still invest now.  As things stand at the moment, and baring any further big shocks, we can expect further gains to come.  They may not be as dramatic as those seen so far this year, but there is still the potential for decent returns, especially when compared to cash.

The FTSE 100, for example, still has another 36 per cent to rise to reach the record high set in December 1999 and, of course, at some point that record will be broken.  

The table below, showing the performance of the S&P 500 in the year following the last six bear markets, is very encouraging.  While the second six month period posted smaller gains in most cases than the first six months, overall the first 12 months of the new bull market produced very handsome returns.

The previous six bear/bull markets followed a similar pattern.  Since the current financial crisis has been compared to the Great Depression, it’s worth looking at those statistics – the S&P 500 hit the bottom on June 1, 1932.  Over the next six months the index climbed 57 per cent.  This was followed by another rise of 49 per cent over the next six month period.  Overall, the index rose 133 per cent over the first 12 months of the bull market.

Even if markets don’t repeat history and returns are less exciting from now on, equities still remain the best option for long-term, growth-oriented investors.  

Investing is not necessarily something we like to do, but something we have to do to increase our chances of outpacing inflation and continuing to enjoy our quality of life right through retirement.

While we can’t say for certain where markets will be in a year’s time, we can say that asset allocation and portfolio rebalancing remain two important techniques in helping you manage risk and enhance returns.  Just as you need to stay in the market despite its ups and downs, you need to have the right mix of equities, bonds and other assets for your investment objectives and personal circumstances.

This is something that should be planned carefully with a financial advisory firm like Blevins Franks, where the adviser will first ask you to complete a financial planning questionnaire to ensure he/she has all the information necessary to recommend a bespoke portfolio.  He/she should then review your portfolio every six or 12 months to rebalance it if necessary to ensure it maintains its long-term asset allocation.

To keep in touch with the latest developments in the offshore world, check out the latest news on the Blevins Franks website by clicking the link on the right of this page.