LONDON (Reuters) - Britain’s FTSE share index will not climb beyond its record high in the next two years, according to a Reuters poll, as concerns over the terms of the country’s divorce from the European Union and rising volatility keep investors on edge.
A Reuters poll of around 30 fund managers, brokers and analysts conducted in recent weeks predicted a 2.4 percent fall for the FTSE 100 across 2018, ending this year at 7,500 - which would be up 3.5 percent from Monday’s close.
It will gain 2.6 percent from the predicted end-December forecast to end-2019, the poll found.
Even though the consensus view from survey respondents saw the FTSE reaching 7,700 by end-2019, that is still below the index’s record of 7,792.56 hit in the middle of January.
This reflects continued uncertainty around the kind of divorce settlement Britain will agree with Brussels as the EU exit date in March 2019 looms.
Accendo Markets research analyst Henry Croft said that by the end of 2018 Brexit talks would “hit make or break”, and a prediction for the end of 2019 was “too difficult to call”.
So far the FTSE is down almost 6 percent in 2018, the worst-performing market in the developed world.
This follows two years of solid returns as the blue-chip FTSE 100 rode the wave of a weak pound following the shock result of the June 2016 Brexit referendum.
Ian Forrest, investment research analyst at The Share Centre, said issues including rising interest rates and Brexit were likely to make further progress for the FTSE difficult.
In comparison, Europe’s STOXX 600 is down just 1.6 percent in 2018 after a global equity sell-off at the beginning of February, with investors predicting a 5.7 percent rise by the end of 2018.
The FTSE 100 was also caught up in the sell-off, when concerns over rising inflation and high bond yields roiled world stocks and volatility spiked.
UK inflation unexpectedly held close to a six-year high in January, reinforcing the likelihood of a rate hike from the Bank of England in May.
“Volatility is likely to stay above the levels we saw for most of 2017, as higher rates prompt a re-evaluation of asset allocation, with high debt, and low-yield stocks likely to bear the brunt of any weakness,” said Michael Hewson, chief market analyst at CMC Markets UK.
Stocks that are considered “bond proxies” thanks to their generous dividend streams have been hit particularly hard, as they can look less attractive to some investors when faced with higher bond yields.
This has put pressure on industries such as utilities, telcos, tobacco stocks and big pharma.
Currency woes have also been a factor this year as sterling hit its highest point since the aftermath of the Brexit vote in January.
FTSE-100 companies, which source the bulk of their earnings overseas, benefited from the currency drop as they translated their revenues from dollars back into pounds. Now that the pound has strengthened, this advantage has waned.
Investors are also wary of value traps, with some companies grappling with big pension deficits, much of the outsourcing sector in crisis and the disruptive force of e-commerce threatening the existence of weaker retailers.
Additional reporting by Danilo Masoni, Julien Ponthus and Reuters Polls team; Editing by Mark Heinrich