Another record close for the FTSE 100 stock index on Friday at 8,140, so not a bad week at all. It’s exactly the kind of value reassessment that the London market delivers that I was hoping for, along with decent results from the big banks, especially NatWest.
But let’s not get too excited. The Footsie is still up only 5 percent this year and, surprisingly, only 10 percent higher than five years ago. By contrast, the S&P 500 index is up 7 percent this year and 73 percent over five years.
The equivalent figures for the German Dax index are 8 percent and 47 percent. The London market remains fundamentally undervalued by global standards.
What’s next? Well, I hope that the value that London offers becomes increasingly recognized and I feel more comfortable with my goal of getting the index to 8,500.
However, in terms of total stock markets, the world will continue to be dominated by the United States. Microsoft, its most valuable company, is worth $3bn (£2.5bn), and that’s more than all the Footsie companies combined.
Record-breaker: We need to take advantage of this nascent recovery in UK share prices to get more people in on the action.
This week it reported good results, thanks to its investment in artificial intelligence, which seems to be having good results. But we still need the “old” industries, the banks, the energy companies, the pharmaceutical companies, the mining companies, etc., and they are strongly represented in the London market.
Still, there are enormous problems. One of them, which is finally being recognised, is that UK pension funds do not invest money in UK listed companies: they have been net divestments of shares for a quarter of a century. It is an issue we have highlighted in this newspaper and, although there is still little hard evidence, I suspect they will gradually rebuild their share portfolios in the coming years. Furthermore, it is a virtuous circle. The higher the Footsie rises, the greater the pressure on institutions to put money into the market.
But that’s just the beginning. Much more needs to be done. We need to find out why sophisticated investors put their money into private equity instead of the public markets. What should be the best investment opportunities for insiders, rather than the general saver? What is wrong with our governance system that encourages companies to remain private?
Perhaps we should require regulators to take into account the broader public interest, rather than focusing on their own narrow and strict procedures.
Take the Bank of England as an example. In the second half of the last century one of its undeclared functions was to promote the City’s business. He helped, for example, found the Invisible Exports Committee, which has now become TheCityUK, and which supports the financial services sector.
However, we need the authority of the Bank to advance the best interests of the City, as it can speak to the Government in a way that no commercial body can.
I wonder why the City’s interests were not sufficiently represented in the Brexit negotiations.
Or the Financial Conduct Authority. Look at the regulator’s website. It goes on about how it protects people with its list of warnings about unauthorized companies, people’s rights, scams, etc.
But while there’s nothing wrong with it, the tone is mostly negative. I wonder if the FCA should be given an explicit requirement to promote access to financial services, so that people who could benefit are encouraged to do so.
It talks about increasing competition in financial services, but one of the effects of its regulations on wealth managers has been to encourage industry consolidation because of the additional costs it imposes.
I suggest that the FCA should follow the Hippocratic Oath, in simplified form, i.e. “first, do no harm”, when considering everything it does.
The big point here is that we need to take advantage of this nascent recovery in UK share prices to get more people in on the action. The dizzying pace of the last few days could well fade. But it demonstrates the fundamental truth that consistent investment in global stocks will generate real wealth over a long period.
