The FTSE 100 could be extremely cheap at 7,500 Points

havenifa

havenifa


Posted on: 26th July 2018

With the FTSE 100 rising to more than 7,500 points in the past few months, it is now trading less than 300 points below its all-time high. Due to this, many investors believe that now is not the right time to invest in the index, with it unlikely to offer a range of stocks that have wide margins of safety.

The reality, however, is that the FTSE 100 could bring in strong returns in the long-run. At the moment, it seems to offer good value for money, with many potential incentives being present to push its price level even higher. As such, it may be worth investing in the index now, with the aim of being less reliant on the state pension in retirement.

Brexit

It would be obvious to say that Brexit is quite a popular topic throughout the UK and economic field. There is still a lack of assurance as to exactly what is going to happen in terms of a deal. There is also uncertainty about how any deal that is to be made will ultimately affect how well the economy performs.

This lack of certainty may not be so bad for the FTSE 100. Its constituents generate the vast majority of their earnings from outside of the UK. Therefore, they are more closely correlated with the performance of the global economy as opposed to the UK economy.

Due to this, if the lack of assurance surrounding Brexit is to grow even more so over the coming months, perhaps even years, then the pound could weaken as a result. This may then lead to a positive currency adjustment for many of the index’s constituents. The final result could be higher valuations and a higher index price level.

Worldwide Growth

While the economic growth in the UK remains unclear, it has generally been much stronger than what was expected by many people after the EU referendum in 2016. However, this largely comes down to the strength of the global economy, which has been pulling the UK economy along to a degree.

It is worth noting that the US economy is currently performing well, with China continuing to grow at a fast pace. Both countries are expected to maintain their current growth rates over the next couple of years. This could mean that earnings are set to enjoy a “purple patch”. This could result in higher valuations and an improvement in investor sentiment.

When people invest in the FTSE 100, they are provided with exposure to the global economy. We are now in a time where we are seeing the end of austerity and spending is on the up. As a result, the index could make record highs which are significantly greater than those of the past.

Valuation

Despite how bright the future of the world economy appears to be, the FTSE 100 continues to offer good value for money.  It has a historically high dividend yield and currently stands are just below 4 per cent. This suggests that despite us currently being in the midst of a bull market, the index has the potential to go even further over the medium term.

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