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Election uncertainty likely to hinder FTSE in early 2015 - Reuters poll
December 17, 2014 / 2:26 PM / 3 years ago

Election uncertainty likely to hinder FTSE in early 2015 - Reuters poll

LONDON (Reuters) - Britain's FTSE 100 .FTSE equity index will reach a record high by the end of 2015, but uncertainty over the outcome of May's national election will curb gains early next year, a Reuters poll forecast.

A red London bus passes the Stock Exchange in London February 9, 2011. REUTERS/Luke MacGregor

The Reuters poll of 49 traders, fund managers and strategists gave a median forecast for the FTSE of 6,800 points by the middle of 2015 and 7,000 points - a record high - by the end of 2015.

That would mean gains by the FTSE of a little more than 7 percent from Tuesday’s close of 6,331.83 by July and over 10 percent before 2016 begins. That’s down from September’s poll, when the median forecast was for 7,200 points by the end of 2015.

Among top global investment banks, Goldman Sachs forecast the FTSE would reach 6,900 points by mid-2015, then rise to 7,100 by the end of 2015.

Morgan Stanley forecast the FTSE at 7,200 by the end of 2015. UBS and Credit Suisse both expected 7,300 by then.

Others were more pessimistic. French bank Societe Generale forecast the FTSE at 5,700 points by the middle of 2015 and 6,500 points by the end of next year.

The wide range in forecasts gathered in the past week highlights the effect May’s election is expected to have.

“The UK election is likely to create increased market volatility,” said Tim Gregory, head of global equities at Psigma Investment Management.

“It is impossible in our view to predict the outcome of the poll at this time, but we would note that earlier this year the Scottish referendum created a great deal of uncertainty in the UK market from which it has struggled to properly recover.”

ELECTION TOO CLOSE TO CALL

The FTSE reached 6,904.86 points in early September, its highest since early 2000. Those gains have since faded, and the FTSE is now down around 6 percent since the start of 2014.

Any new monetary stimulus from the European Central Bank early next year, such as buying sovereign bonds to encourage European economic growth, should lift the UK and European stock markets.

However, those gains could quickly fizzle out as the British election approaches. Most opinion polls put the opposition Labour Party neck-and-neck with the Conservatives, the dominant party in the current coalition government with the Liberal Democrats. Many doubt any party will gain a majority, leading to another coalition government.

Richard Griffiths, associate director at Berkeley Futures, said any indication of an outright Conservative win would lift the FTSE by 5 to 7 percent. A closer vote and uncertainty over the make-up of a coalition could push it down 3 percent.

Others said the FTSE could still ride out any volatility caused by the election, which may be reflected primarily in a dip in sterling GBP=. That could benefit the exports of the global companies that dominate the FTSE.

Steve Ruffley, chief market strategist at InterTrader, said the FTSE would still benefit as record low interest rates hit returns on bonds and cash, driving investors to the better returns available from the stock market.

“All in all, the FTSE goes higher as there is nowhere better to put your money for relative safety,” Ruffley said.

Additional reporting by Blaise Robinson, Francesco Canepa and Tricia Wright

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