Over the past year, the FTSE 100 has fallen by nearly 3%. And it’s still lower than it was when Covid started to wreak havoc in the UK. In fact, it was higher in April 2017.
As someone who has mainly Footsie shares in his Stocks and Shares ISA, I find this particularly frustrating. I’m seriously considering abandoning domestic stocks and shares, and looking elsewhere.
The recent past
But there’s a risk of throwing the baby out with the bath water.
It was less than six months ago — on 20 February 2023 — that the index set an all-time high. Buoyed by an increased sense of optimism about the domestic economy, investors piled into equities.
At the time, the base rate was 4%. But a further four increases since then, and the prospect of more to come, has dented this confidence.
Inflation is also proving to be more stubborn than originally thought.
According to KPMG, the UK will avoid recession in 2023 but gross domestic product is forecast to grow by just 1.1% in 2024.
Since reaching its peak, the five largest listed companies in the index – AstraZeneca, Shell, HSBC, Unilever, and BP — have seen £47bn wiped off their combined valuation.
This has pushed the index nearly 9% lower.
International comparison
And the perception that the FTSE 100 is stuck in the doldrums is magnified further when the performance of other major stock market indexes is considered. Over the past six months, both the NASDAQ and Nikkei have risen by 14%, and the S&P 500 is up 8%.
But this isn’t the full story.
The Hang Seng is down 12% since February 2023, and China’s CSI 300 has fallen by 7%.
Perhaps things are not quite as bad as they seem. As my grandmother used to say, the grass isn’t necessarily greener on the other side.
According to AJ Bell, the FTSE 100 is presently offering a yield of 4.4%. No other major market is presently offering a better return.
Look more closely and it’s possible to find 10 stocks forecast to yield in excess of 8% in 2023.
Decision made
I think it’s a little premature to be giving up on the FTSE 100.
Until the outlook for the domestic economy is more positive, and the battle against inflation has been won, UK stocks and shares will inevitably struggle. Investors needs to feel confident about the future before parting with their cash.
But most of the companies in the index are international in nature. They are not entirely dependent on the domestic economy. It’s estimated that 70% of their sales are generated overseas. According to the International Monetary Fund, global growth will be 3% in both 2023 and 2024.
And successful investing is all about taking a long-term view. Six months is too short a period to make any sensible judgements.
I’m therefore going to stick with the FTSE 100 for a little longer.
