What a year it has been for London’s flagship FTSE 100 index of leading shares!
The Footsie has hit a series of all-time highs, including last month. Could this strong momentum potentially continue into the autumn and perhaps beyond?
Still reasons to be cheerful
I see some reasons to think that it could.
Despite having gone up by 12% so far this year, the London market still looks cheaper than some other leading bourses.
With geopolitical volatility leading some investors to broaden their horizons, London is attracting some money from overseas. Along with investment by locals, that could help keep the market buoyant.
Meanwhile, concerns such as weak British economic performance and an uncertain outlook for international trade do not seem to be dampening investor sentiment towards the FTSE 100 so far as much as some investors may have expected.
Lots still to be seen
However, whether that will change is unclear.
For now, the market is buoyant and I do see a possibility that it will remain that way. In that case, the FTSE 100 could move even higher from here in coming weeks and months.
But what concerns me about this year’s rally to date is that it has largely been in spite of — rather than because of — economic fundamentals. This hardly feels like the most promising moment in Britain’s economic history, so it strikes me as a little odd that the FTSE 100 has been going from strength to strength.
I’m avoiding the index – here’s why
For now, I have no plans to invest in any FTSE 100 tracker funds.
But I do think that some individual shares in the index could yet turn out to be a bargain at their current price.
For example, one FTSE 100 share I added to my portfolio this year is janitorial supplies wholesaler Bunzl (LSE: BNZL). While the index has been performing strongly this year, that was not thanks to Bunzl. The Bunzl share price is down 22% so far this year.
It has been doing better lately, though, moving up 15% over the past month. I am hoping that this could be the start of a long-term recovery in the price.
At 18 times earnings, Bunzl does not now look obviously cheap in my opinion. After all, its business perofmance this year has been weak, with basic earnings per share in the first half down 6% year on year. The North American business has been underperforming and I see a risk this could continue.
But as a long-term investor, I like Bunzl’s proven business model, large customer base, and strong position in key markets.
While it has some work to do to regain investor confidence, if it is able to do so and improve business performance, then the current price could turn out to be more of a bargain over time than it currently seems.
That is why I have been buying the FTSE 100 share for my portfolio.
