It took a while. On Friday, the FTSE 100 index hit a record high, bursting at last through the 8,500 milestone to close at 8,505. That’s great for investors who have stuck with UK plc.
The trustees of the pension funds that have sold their UK equities in favour of gilts should be asking some tough questions. But there is a sting in the tail.
That is because the surge was in part the reaction to bad news about British growth.
The combination of flat economic performance in the third quarter of last year and a lousy Christmas in shops means there will be huge pressure on the Bank of England to cut interest rates at its next meeting on February 6.
The fact that inflation eased a little in December gives it cover to do so. So it is now odds-on that we get that cut in rates, something that did not look certain even a week ago.
This will lead to a weaker pound, which dipped below $1.22 on Friday, in turn boosting the profits of our largest enterprises.
Change of heart?: Rachel Reeves will have an opportunity to counter her previous dire comments on the UK in Davos
Some 80 per cent of the revenues of Footsie members comes either from overseas earnings or from exports, which directly benefit from the fall in sterling.
The share prices of the medium-sized firms on the FTSE 250 index rose by much less than that of their larger cousins because they are much more dependent on the domestic economy.
So it’s good news for the giants that make most of their money abroad, not so good for the smaller ones that have to rely on battered British consumers.
There are, however, two other elements to this surge in London share prices.
One is whether we are catching a glimpse of the long-awaited shift in investor mood from the highly-priced so-called ‘growth’ stocks towards the cheaper ‘value’ companies.
Apple is a wonderful enterprise, but is it really worth $3.5 trillion (£2.9 trillion)?
It is on a price/earnings ratio of 34 and you get a dividend yield of less than 0.5 per cent.
Maybe better to buy Shell, which is on a price/earnings ratio of 14 and gives a yield of nearly 4 per cent.
It is early days, but let’s just note that so far this year Apple shares are down more than 5 per cent and Shell shares up more than 8 per cent.
The other big shift that may be happening is a rerating of the UK as a good place in which to invest spare cash.
We remain deeply unfashionable and having our Chancellor trashing the economy has not helped. But tomorrow a couple of things are happening that might help drive an upgrading. One is in America. Even the less observant of us will have noticed that it is inaugurating a new president. While we should expect no favours from Donald Trump, he and the people around him are at least very interested in the UK and concerned about our future.
Our present Government is not best oriented to take advantage of that, but the doors will at least be open.
Attitudes to the UK will in general be more favourable under this new administration than they were under the Biden one, and I could see that affecting investment flows.
The other is that the annual Davos meeting opens. This is the World Economic Forum – the annual shindig in the Swiss mountains, where the world’s leaders gather and converse about the future of the world economy.
It is easy to mock: a lot of sanctimonious people flying in on their private jets and banging on about global poverty and the need to cut carbon emissions.
The expression ‘Davos man’ was coined back in 2004 by Samuel Huntington to describe a wealthy elite enriched by globalisation and insulated from the concerns of ordinary people.
But Davos is good at catching the mood. Wisely the organisers have invited Trump, who is speaking via a video link, and a solid phalanx of US business leaders will be there in person.
Chancellor Rachel Reeves is going, which will at least be an opportunity to counter her previous dire comments.
Don’t expect a radical shift, but having the Footsie at an all-time record helps.
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