COMMENT

Where Next For The FTSE?

By David Kuo (TMFDragon)
March 20, 2006

Now that the FTSE 100 index has breached the 6,000-point level, can London shares continue their ascent? We asked some Fools in the office for their views -- and even tempted them to make some rather unFoolish predictions about when the FTSE might surpass the 7,000-point level.

Here's what they had to say:

Stuart Watson (TMFTiger) - Editor - "I wouldn't be at all surprised if the FTSE sailed through the 7,000 level by Easter next year. The index only needs to rise some 16% from where it is now and increases of that sort of order over the course of a year are surprisingly frequent (about 50% of the time over the last 30 years for example). Profits and dividends look set to continue growing for a little while yet and the current takeover frenzy shows no sign of abating. But investing is always a long-term game of course so anyone putting new money into the stock market should still be thinking of a timeframe of at least five years."

Bruce Jackson (TMFGoogly) - Managing Director - "I'm looking for FTSE 8,000 rather than 7,000. Actually, I have no idea where the FTSE index is headed. I don't really care, although I do admit to cheering a rising market. I make monthly contributions into an index tracking ISA, and have been doing so for many years now, so as the market rises, so does the value of my ISA. On the other hand, if the market was to fall, I'd be ready to pounce on any individual bargains that popped up. January to March 2003 was a great buying opportunity, and in that period I loaded up on individual stocks. So roll on FTSE 4,000 followed by FTSE 8,000 by Christmas 2009. If only..."

Maynard Paton (TMFMayn) - Champion Shares analyst - "This bull run still has a long way to go. I note the P/E of the FTSE 100 at 6,000 is just 13, the lowest since at least 1994. Yet going on recent dividend announcements, underlying blue-chip growth is a very healthy 16%. Mega share buybacks imply blue chips remain flush with cash, while numerous big-name takeover approaches are more evidence of the market's under-valuation. Reading the press, it's easy to see there's still a wall of worry to be climbed and more market cynics to be converted. I predict the FTSE 100 will breach 7,000 before October this year."

Ed Bowsher (TMFArkle) - Investment Writer - "I'm still bullish about the London market. I reckon there's a strong chance that the FTSE could reach 7,000 by the end of the year. Even after recent rises, the FTSE is paying out a 3% yield and there are plenty of share buybacks. What's more, I think gilts are grossly overvalued. When the gilts bubble finally bursts, investors will come back to shares. Yes, I could end up looking stupid. But heck, I don't really care that much whether the FTSE finishes 2006 at 5,000 or 7,000. As long as my personal portfolio delivers decent profits over the next five years, I'll be happy."

Neil Faulkner (TMFVertigo) - Personal Finance Writer - "I'm not one of The Fool's investment specialists, but they fancy a laugh at my light-hearted prediction. I'm not going to analyse graphs or get technical. Investor and analyst opinion is fairly positive and, I think, likely to stay that way for a while. I believe there's value to be had; many company P/Es are still on the low side. (Yes, that's as technical as I'll get.) Plus there's been a lot of takeover activity, and potential for quite a bit more. So I think the FTSE will slowly but surely find its way up to 7,000 by, oh let's say, Christmas 2007."

So there we have it -- five Foolish views about where London shares are headed and not a bear amongst them. The absence of bearish views could perhaps be a warning sign that the market's biggest gains are behind us!

I'm slightly more cautious about the market than my colleagues. I reckon the recent rise in London shares has been fuelled as much by takeover activity as by fundamentals. And much of the takeover activity has been due to the bulging pockets of private equity investors looking for a suitable home for their money. Thing is, the market could easily deflate if takeover fever subsides.

Another area that worries me is consumer debt. After all, how can companies expect to grow while consumers are cutting back on spending to pay for the rising cost of essentials? Recent hikes in fuel and energy costs are just some of the issues that consumers face. What's more, the Governments is not helping by penalising put-upon consumers with ever- increasing direct, indirect and stealth taxes.

So, am I one of those who are building the wall of worry? Let's put it this way. Remember, whilst there are sceptics like me out there to be converted, the market should carry on rising! But for now pass me my trowel!

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