May 19, 2017 21:03 GMT by dailymail.co.uk

Why blue chips may not have peaked yet

Why blue chips may not have peaked yet

Despite fears of waning investor sentiment since the EU referendum, the index has largely been pushed forward by a fall in the pound as many firms listed on it make their earnings overseas.

On Tuesday, in a red letter day for investors, the FTSE 100 passed the 7500 mark for the first time.

It marked the climax of a strong run for the blue-chip index, which has gained around 2000 points in the past 15 months.

Despite fears of waning investor sentiment since the EU referendum, the index has largely been pushed forward by a fall in the pound as many firms listed on it make their earnings overseas. 

But as the UK continues to navigate its way through an increasingly aggressive minefield of domestic and global political problems, can the FTSE's run last, or has the time to bet on Britain's blue-chips stocks now passed?

One of the biggest short-term risks to the FTSE's well-being, perhaps, lies in next month's general election – almost £46billion was wiped off its value when Theresa May called the vote last month.

Markets hate uncertainty, and the FTSE is unlikely to get stability until it is clear who will lead the UK and how they will do it.

But Michelle McGrade, chief investment officer at TD Direct Investing, believes the election is unlikely to hit the FTSE 100 too much, regardless of who wins.

For investors particularly worried about timing their entry to the FTSE 100 due to short-term volatility, she advises having a diverse mix of stocks and investing regularly. 

She added: 'If you invest in a broad variety of FTSE 100 stocks regularly, this averages things out and allows you to count on the long-term forward movement of markets.'

But long-term threats to the FTSE 100 also exist, namely, the UK's divorce from the EU. 

With Brexit sabre-rattling already upsetting markets on numerous occasions, one wonders whether such volatility will only increase when the UK's departure starts to take a more definite shape.

Election fever: Markets hate uncertainty, and the FTSE is unlikely to get stability until it is clear who will lead the UK and how they will do it

Election fever: Markets hate uncertainty, and the FTSE is unlikely to get stability until it is clear who will lead the UK and how they will do it

Ian Williams, economist and strategist at Peel Hunt, said many of the Brexit-related blips have come because companies are still learning how to react to it, and that common sense will prevail once the negotiations have progressed, with market reaction becoming more muted and easier to pin down.

But perhaps the biggest threat comes from overseas in the form of a certain US president. 

Growing fears around Donald Trump's ability to deliver on pledges to cut taxes and raise infrastructure expenditure to $1trillion have already led the FTSE to retreat from the 7500 mark.

However, with the FTSE 100's current 4 per cent dividend yield far surpassing the 1.2 per cent being offered by ten-year Government bonds, Russ Mould, investment director at AJ Bell, said it still makes sense to buy into UK companies.

He added: 'If central banks around the world do finally stoke accelerated growth, then the FTSE 100's mix of banks, miners and oil firms make it as good as any to play such a trend.'

Stephen Bailey, a fund manager at Liontrust Asset Management, said a way to avoid the question of whether or not the FTSE 100 will continue to rise is to focus on firms which are well suited to change. 

He said: 'Companies such as the life insurers are well placed to benefit from long-term changes, which will mean more demand for savings and pension products.'

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