MARKET COMMENT
FTSE 100 Has Limited Downside

By Maynard Paton (TMFMayn)
June 10, 2002

The stock market is giving investors another hard time. Since May 15th, the FTSE 100 has plunged 7%. At 4,920, the UK's leading share index stands at a level first surpassed during July 1997.

However, rather than focus on the FTSE 100 index per se, it's worth remembering that it only represents the share price movements of its 100 members. The ten largest companies within the FTSE 100 are listed below.

Company                 Share      Market       P/E    Dividend
                         Price      value                yield
                         (p)        (£m)                 (%)

BP                        558     125,171       19.7     2.8
GlaxoSmithKline         1,358      82,203       16.5     2.9
HSBC                      817      77,041       16.9     4.4
Vodafone                   95      64,734       17.3     1.6
Royal Bank Of Scotland  1,985      57,278       13.7     2.2
Shell                     514      50,013       18.4     3.0
AstraZeneca             2,810      48,674       24.2     1.7
Unilever                  624      43,608       17.1     2.5
Lloyds TSB                716      39,841       12.1     5.2
Barclays                  576      38,235       13.2     3.3

On a combined basis, these ten shares represent over 50% of the FTSE 100 and will thus largely determine the index's future performance.

Assuming you believe all the forecasts, a cursory glance at the valuations suggests only AstraZeneca (LSE: AZN) is on what could be described as an extended rating. Conversely, worries over the company's patents has left GlaxoSmithKline (LSE: GSK) on its lowest rating for nearly ten years.

Turning to the banking sector, HSBC (LSE: HSBA), Royal Bank of Scotland (LSE: RBOS), Lloyds TSB (LSE: LLOY) and Barclays (LSE: BARC) all appear to have rather miserly ratings. Indeed, the dividend yields offered by HSBC and Lloyds do look quite attractive. Meanwhile, the valuations of BP (LSE: BP.), Shell (LSE: SHEL), Vodafone (LSE: VOD) and Unilever (LSE: ULVR) all look quite reasonable. On the face of it then, the downside to the FTSE 100 appears limited at present.

Of course, any attempt to calculate or judge the exact stock market bottom is futile. Nobody knows just how miserable, how depressed the last seller of stock will be before the market turns. In the current climate, ordinary share investors should use their time in a more constructive manner. Certainly topping up on any index tracker investment would be a good course of action at the moment. And for the DIY stock picker, it could be worth considering a few blue chip heavyweights.