As 2014 draws to a close, it’s clearly been a very disappointing year for UK investors. While a number of stocks have performed well, the overall index has made little (if any) gains since the turn of the year and this contrasts markedly with its performance in 2013, when it rose by almost 14%.
Looking ahead to 2015, though, things could be much better for UK investors and, in my view, the FTSE 100 will hit 7,500 points. Here’s why.
A Changing Europe
While Europe has been the worst performing region in the world when it comes to growth figures for a number of years, 2015 could see this change. That’s because the ECB is apparently willing to do whatever it takes to avert the dual threat of deflation and recession. This includes the use of more aggressive policies, such as QE, that have been relatively successful in the UK and US, with them undoubtedly helping those economies to pull through the recession much quicker and begin the road to recovery at a faster pace.
Although Europe may not suddenly become a fast-growing region, 2015 could see a shift in its performance and this could cause investor sentiment to improve, thereby pushing the FTSE 100 higher.
While the UK and US have seemingly come to the end of their asset repurchase programmes, both countries are set to maintain an ultra-loose monetary policy throughout 2015. This doesn’t mean that interest rates will not rise, but it does mean that they are likely to stay low enough to provide a major boost to the economies of both countries.
Furthermore, China is also creating conditions that are more conducive to growth, with the world’s second biggest economy cutting its interest rate recently. This is rumoured to be the first in a series of cuts and, although there will be a lag before it has a major impact upon its economy, it bodes well for growth in the wider Asia region in 2015 alongside the potential for further stimulus from Japan, too.
Of course, risk factors such as a weak Russian economy, short-term challenges in Europe and the continued threat from Ebola cannot be discounted. In fact, the first part of 2015 could see the FTSE 100 pegged back by such threats.
However, with the world seemingly making encouraging progress with regard to containing and ending the threat from Ebola, as well as the ECB planning a change in strategy when it comes to stimulating the Eurozone in 2015, the FTSE 100 could shake off such potential risks. Furthermore, with Russia arguably not being the economic powerhouse that it once was, further uncertainty regarding its economy may not have as great an effect on the level of the FTSE 100 in 2015 as is currently being expected.
So, while 2015 is not without risks, the right conditions could be in place to allow the FTSE 100 to move much higher throughout the course of the year. Furthermore, the FTSE 100 would need to have a price to earnings (P/E) ratio of 17.3 for it to reach 7,500 points and, with the S&P 500 trading on a P/E ratio of 19.5, an upward rerating seems entirely plausible and would still leave the UK’s major index trading at a sizeable discount to its US peer.
So, with the FTSE 100 having the potential to rise in 2015, it could be well-worth finding the stocks that could make significant gains over the course of the next year.
Peter Stephens has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.