A Quick Look at What’s in Store for U.K. Stock Markets in 2017

What Markets Are Pricing in About the U.K. Economy

While the FTSE 100 Index is among the developed world’s top performers in 2016, its showing relative to Europe has been less impressive since investors turned bullish on global growth. About a third of the gauge is composed of health care and consumer staples, which are typically deemed more immune to economic cycles. That will weigh on the U.K. benchmark as the world economy strengthens and bond yields rise, a trend which strategists at Credit Suisse Group AG predict will continue.

Here are more projections for U.K. equities in 2017:

  • Analysts on average predict FTSE 100 earnings will rise 25 percent, lead by increases in miners and energy stocks. Oil is already trading at a 17-month high.
  • While a post-Brexit slump in sterling boosted British exporters in 2016, Credit Suisse says the currency won’t fall much further. Nor will emerging markets -- accounting for about 17 percent of U.K. sales -- provide much support in 2017, according to the bank.
  • Investors will also watch for details on trade negotiations as the U.K. seeks to exit the European Union. British Prime Minister Theresa May intends to start the formal Brexit process by the end of March. She faces a potential obstacle to her timetable with a court ruling due next month.
  • Strategists on average say the FTSE 100 will end the year at 7,350, implying a 4.3 percent gain from Tuesday’s close and sending the benchmark to fresh peaks. While the gauge reached an intraday record in early October, it didn’t manage to close at an all-time high this year.
  • The FTSE 100 has risen 3.8 percent in December, only half as much as the Stoxx Europe 600 Index, as a rally in U.K. miners ran out of steam after they surged to a two-year high earlier in the month. The FTSE 250 Index of mid-caps is up just 1.1 percent.
  • Options traders are betting the rally has further to go, pushing the cost of hedging against declines in the British index to near the lowest level since August.
  • Strategists at Credit Suisse and Jefferies Group are bearish on U.K. stocks, while HSBC Holdings Plc is bullish, holding an overweight recommendation.
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