Depending on which news article I’ve just read, the FTSE 100 is going gangbusters or on the verge of crisis. From my point of view, the Jekyll and Hyde nature of London’s leading index brings about a few burning questions.
Questions like: what’s going on with the FTSE 100? Is the Footsie heading for a terrible crash? Or are there lots and lots great stocks to buy right now (and what are they)? Let’s try and answer them.
Tip of iceberg
On the surface, the FTSE 100 is going great guns. Record highs keep being broken. The index keeps outperforming its American equivalent, the S&P 500. All is looking fine and dandy. There are, however, a few monsters lurking underneath the bed.
The FTSE 100 tech and tech-adjacent companies were supposed to be the ones to benefit from artificial intelligence, but instead the opposite is happening. In only the last year. RELX is down 36%, Rightmove is down 34%, and London Stock Exchange is down 31%. These are colossal drops and could just be the tip of the iceberg if AI keeps improving.
Completely unrelatedly, the introduction of weight-loss drugs has thrown a hammer blow to a bunch of restaurant and alcohol stocks. In the last two years while the FTSE 100 has been surging, Diageo is down 42%, Whitbread is down 22%, and Associated British Foods is down 28% – on the back of investors expecting folks to be eating and drinking less.
All this is one reason investors such as myself like picking individual stocks. With an index fund that tracks the entire market, you’re lumped with the losers and the deadweight. By choosing a small basket of individual companies, there is a chance to personalise a portfolio of the best stocks available. Of course, there is the chance of making a few bum picks and ending up with worse than the average too.
Unique case
One stock I believe is worth considering today is HSBC (LSE: HSBA). The bank is currently the FTSE 100’s largest company with a £200bn market cap, yet the share price has surged 202% in the last five years.
Banks are traditionally considered a defensive sector. These are necessary businesses that can’t be undermined by a new technology. That often makes them safer investments for the long term. Some studies even expect banking to be one of the areas that benefit most from the adoption of current AI models.
While the UK has a bustling finance sector, HSBC is something of a unique case with its exposure to Hong Kong and China. The world’s second most populous country is still growing at GDP of 5% a year, which offers more opportunity than many Western nations that struggle to grow above 1% a year.
The Chinese focus is a double-edge sword, though. Some worry about the accuracy of economic figures coming out of the country and potential government overreach. These are risks for a bank that draws over 50% of its earnings there.
To sum up? It remains to be seen if the strange nature of the FTSE 100 and some of its constituents continues in this manner, but there will always be plentiful attractive opportunities on the index. I think HSBC could be one of those at the moment.
