The FTSE 100 index got here beneath heavy stress in 2022 because the disaster in Ukraine escalated. After rising to a multi-year excessive of £7,683, the inventory has entered correction territory, falling about 10%. It’s buying and selling at £7,088 with most of its holdings within the crimson 12 months thus far. Nonetheless, it has outperformed different European indices similar to France’s CAC 40, Germany’s DAX index and Italy’s FTSE MIB.
There are a number of the reason why the FTSE 100 index has fallen sharply in current months. First, the Financial institution of England (BOE) has a job to play. The financial institution stunned traders in November when it determined to boost rates of interest. It then adopted it up with one other rise in February and hinted it’s going to see additional positive aspects this 12 months.
The BOE argued that price hikes have been needed because the financial system noticed an increase in inflation whereas the labor market tightened. Nonetheless, regardless of the 2 price hikes, inflation within the UK stays excessive. Traditionally, indices just like the FTSE have tended to underperform throughout a interval of excessive rates of interest.
Second, the FTSE 100 index has crashed because of the ongoing disaster in Ukraine. Boris Johnson’s authorities has introduced new sanctions towards Russian oligarchs and firms in its response. Consequently, some FTSE constituents with publicity to Russia have fallen sharply. Evraz, whose inventory worth has fallen greater than 85% from its highest stage this 12 months, is a living proof.
Third, analysts are involved about margin enlargement at Footsie corporations. The concept is that many corporations within the index will endure if the price of doing enterprise rises. For instance in our Gregg’s share worth outlook, we famous that the corporate will endure if the price of wheat rises. Likewise, the Rolls Royce inventory worth has fallen because of the rising price of titanium, aluminum and different metals.
FTSE 100 vs DAX Index vs CAC 40
The chart beneath exhibits that the FTSE 100 index has outperformed its rivals similar to DAX and CAC. This efficiency is principally on account of the truth that the UK financial system seems to be recovering quicker than most European nations. That is evidenced by the truth that the nation’s unemployment price is 4% whereas the EU common price is 7%.
One more reason is that many British corporations have turn into enticing to overseas consumers, particularly from the US. The argument is that corporations are undervalued after Brexit. For instance, in 2022 a personal fairness agency purchased Morrison’s, the nation’s third-largest grocery store chain.
Throughout the identical interval, NortonLifeLock acquired Avast in a deal that valued the corporate at greater than $8 billion. A PE firm within the UK additionally acquired Meggit, a serious UK protection contractor.
One other main downside is that Patrick Drahi, a French billionaire, has acquired a stake in BT, which he believes is undervalued. One other deal noticed activist traders similar to Nelson Peltz and Cevian announce pursuits in British corporations similar to Unilever and Vodafone.
We have now not seen such offers in the remainder of Europe, which explains why the FTSE 100 index has outperformed DAX and CAC.
Is the FTSE 100 Index a Good Funding?
Regardless of the current downturn, the FTSE index has carried out comparatively effectively over the previous two years. Since March 2020, the share has elevated by greater than 47%. Some analysts imagine that the index is an effective funding based mostly on its valuation.
In response to CEIC, the FTSE index has a price-to-earnings ratio (PE) of 14.5. Nonetheless, as proven beneath, this valuation is considerably beneath the historic common of greater than 20. This means that the index has turn into undervalued partially on account of Brexit.
In contrast, the S&P 500 index has a median PE ratio of 24, that means a 10-point distinction between the 2. Additionally it is undervalued in comparison with the DAX index, with a median PE of about 16.
Due to this fact, given the valuation and the truth that there may be growing demand for UK corporations, the FTSE looks like a great funding.
FTSE 100 Greatest Performing Elements in 2022
Many corporations within the FTSE 100 index are within the crimson this 12 months because of the disaster in Ukraine. Nonetheless, some corporations have managed to do effectively due to their industries. Most of those are corporations within the mining and oil and gasoline industries.
The highest performer within the FTSE is BAE Methods, a number one protection contractor. Shares have risen just because extra nations have pledged to spend extra on protection after the invasion of Ukraine. The BAE share worth has elevated by greater than 37% this 12 months.
The opposite high performers are Glencore, Anglo American, BHP, Antofagasta and Shell, which have risen by greater than 20% because of the surge in uncooked materials costs. Others which have made earnings embody corporations like Normal Chartered, British American Tobacco and Centrica.
FTSE 100 laggards in 2022
The worst performers within the FTSE index are corporations with publicity to Russia. Coca-Cola’s share worth has fallen after it introduced it could depart the nation. The share worth has fallen 40% this 12 months. Different laggards embody corporations similar to Scottish Mortgage Funding Belief, Croda, Ocado, Melrose, Barratt Improvement and Flutter Leisure.
FTSE 100 Index Prediction
The FTSE 100 index has been beneath stress in current days. It has managed to interrupt above the 50-day and 100-day shifting averages whereas the Stochastic oscillator has risen above the oversold stage. It’s between the 23.6% and 38.2% Fibonacci retracement stage.
Due to this fact, there’s a probability that the sell-off will proceed as bears goal the subsequent key assist stage at 6.588, which is previous the 50% Fibonacci retracement stage.