Elevated view of the City of London skyline at dusk.
getty
I’ve been writing here for a long time that the U.K.’s FTSE 100 was a good candidate for a positive change in fortune. Its performance has been so utterly lamentable compared to the U.S., Germany, and many other indices that it seemed inevitable its day would come.
This is generally an unpopular opinion. While reversion to the mean is a semi-accepted concept, the prevailing wisdom in markets is that stocks that go down will keep going down and are basically doomed to fail. As a contrarian, I know this is wrong, but the converse – that you should sit on winners and let them ride beyond all possible logic – has been excellent advice for many years now.
As a contrarian who believes in buying low and selling high, the FTSE’s dreadful performance for the better part of a generation has been far too tempting for me to ignore.
So, while I’ve been calling for a renaissance (if you bracket out my tariff crash manoeuvres), the FTSE has been slowly but steadily grinding upward.
That’s good news, because being long this pile of underperformance has been a lucrative specialty for me for years. And now the market is actually doing better than just moving sideways.
I’ve been calling 9,000 for some time – and here we are.
Here’s the chart to consider (you know I like the long term):
A long-term chart of the FTSE 100
Credit: ADVFN
As far as I am concerned, this is a breakout:
The FTSE 100 chart – breaking out
Credit: ADVFN
And it’s happening against a backdrop of the lowest U.K. morale on record. I think even punk rock Britain had more spirit than now. But for all the misery, the market is running – and if this really is a breakout, 10,000 will come fast.
So let me add some context:
The FTSE chart compared to the SP500 and the German DAX
Credit: ADVFN
There isn’t a huge reason the FTSE can’t reclaim some of that lost ground. (Well, there are a few – but looked at objectively, there are plenty of things that could go right.)
Behind this breakout story is money flow. Money is coming out of the dollar because it’s too high, and the White House wants it down – or rather, even if it doesn’t want a weaker dollar directly, it wants lower interest rates, which amounts to the same thing. This money will flow out of dollar-denominated stocks into similar non-dollar-denominated stocks in comparable markets and regulatory environments.
The volume of U.S. stock money flowing to London will spike shares there – because the bottom line is this: 1 Nvidia equals the whole market cap of the London Stock Exchange. Even the most novice investor can see that a U.K. share doing the same thing at the same scale as a U.S. stock is valued at less than half per unit of enterprise.
Which brings us to another obvious point. Cheap U.K. shares are in the bargain bin, and they’re getting picked off one by one by international companies. Takeovers come with premiums – usually around 40% – and that’s not counting the rally a share gets when investors smell blood in the water.
This, too, is pushing the market upward.
Some people sneer when they hear “buy low and sell high” – often because they don’t, or because it’s hard to find anything that’s “low” in today’s liquidity-juiced markets.
Well, the FTSE is low. As low as a Chihuahua.