23rd December 2015
Helal Miah, Investment Research Analyst at The Share Centre, outlines the key drivers behind The Share Centre’s FTSE 100 forecast…
Our call for UK mid-caps to outperform the large caps during 2015 has proved correct, chiefly because of the performance disparity of the UK economy versus global peers. The internationally exposed large caps suffered from falling energy and commodity prices, a moderating Chinese economy and general weakness in the emerging markets. On top of this, sterling’s strength devalued these company’s overseas earnings.
Unfortunately, we see many of these themes being a feature of 2016 as well. The UK and US economies will be the bright spots and as both countries move towards withdrawing money stimulus and raising interest rates, they will in our view, further strengthen their respective currencies. Therefore, overseas earnings of the multinationals will still be dampened. Not only that, but as has already been the case in 2015, more companies will be reporting difficulties in exporting products due to their currency strength.
With regards to oil and commodity prices, we believe that the bottom is getting closer but do not expect material rises in price even if demand does pickup. This is because there is more than enough production capacity to not put upward pressure on prices. This is likely to be a main reason why the FTSE 100 could underperform other indices once again. For the UK there is the additional risk posed by the EU referendum.
At the Share Centre, our forecast for the FTSE 100 at the end of 2016 is 6480, based on the multiple factors mentioned above.