The Footsie or FTSE 100 is the Headline stock index of the London Stock Exchange. Maintained by the FTSE Russell company, it represents the top 100 companies which are listed on the London Stock Exchange. On the exchange, these companies are the largest in terms of market capitalization, revenue generation and international business reach among other things. Hence, they exert significant influence on the working of the rest of the market as well. Given the above, it is also imperative that factors that can have an impact on the prices movement of these stocks be studied well so that a forecast may be made on the future direction the index may take and with it the other indices on the London Stock Exchange.
Currently, the United Kingdom is going through a transition period. The pre-Brexit, uncertain macro-economic climate is finally changing with the already negotiated deal between the United Kingdom and European Union set to sail through. The finer details of the modalities of the partition will finally be in place now that the conservative party is back in the treasury benches with a stronger mandate. The capital markets are also responding to these developments positively with most of the fund managers and other market participants portraying a stable and improving outlook for 2020.
Below discussed are five factors that would have a material effect in the way footsie would shape up in 2020 and beyond.
- Brexit, January 31st, 2020 – The factor that is going to have the maximum impact on how the London Stock Exchange is going to shape up in 2020 and beyond is going to be Brexit. Brexit is going to bring about many structural changes in the way the British Economy functions. The tariff structures on the movement of goods and services across borders are going to change; movement of people between countries are going to change and most importantly many business tie-ups that had been forged over several decades will fall apart and would have to be replaced by new ones. It is difficult to see how many of these factors will change and with what magnitude and what impact they will individually and collectively have on the business environment in the United Kingdom and consequently on the performance of the companies operating from there.
- The New UK trade deals with EU member countries – The second most important factor to have a material impact on the economy of the United Kingdom and its businesses are the new trade deals that the United Kingdom will enter into with other European Union member countries individually and the European Union itself outside the ambit of the European Union regulations. Now that the United Kingdom is set to out of the European Union these deals are extremely important as they seek to restore many of the arrangements between the member countries and the United Kingdom which were aiding smooth business transactions among them and are set to collapse with both economic blocks parting ways.
- The New UK-US Trade Deal – Both the United States of America and the United Kingdom have been hinting for some time that they seek to enter into a trade treaty amongst themselves that will far surpass trade treaty with the European Union in magnitude that the United Kingdom was a party to. On December 13th, 2019 when the results of the United Kingdom general elections were finally out, the President of the United States while congratulating the British Prime Minister promised such a deal as soon as the January 2020 Brexit event came to pass. In his statement, he also stated that the United Kingdom was constrained to enter into such a trade deal due to the regulations of the European Union. Now with the regulations gone both countries can enter into a more comprehensive and far-reaching trade agreement.
- The US-China trade war situation – The United States and China trade war situation is having a telling effect on the world economy. Both warring parties are the largest and the second-largest economies of the world and a tariff war among them is impacting the supply and demand dynamics of most of the primary commodities, semi-finished and finished goods traded in the world. The United Kingdom has a significant trade association with China, with many of its companies having a long association with that country. Since the intensification of the tariff war situation, most of the foreign companies working in China have been witnessing sluggish business there, and countries which received significant numbers of Chinese tourists, students and business travelers have also been witnessing a substantial dip in their numbers. Towards the last quarter of 2019, both the United States and China have entered into trade negotiations resulting in easing of tensions between them and igniting chances of revival of the Chinese economy with it.
- The UK GDP figures – The United Kingdom’s GDP numbers and other leading economic indicators will have a telling impact on the sentiments of the general consumers of United Kingdom and also on its domestic and international investors. Most of these indicators, after having been in a downturn for a couple of years now have been showing signs of a turnaround since the Benn Act in September 2019 was passed. The strong mandate received by the Boris Johnson government in the December 12, 2019 elections makes it an overwhelming certainty that the January 31, 2020 Brexit deadline will not be missed under any circumstances. The certainty of a suitable deal protecting business interests of both sides has already reversed the direction of many of these downward sloping indicators. With the situation improving in the coming months, these numbers will entail a positive influence on the sentiments across the United Kingdom.
The Jumpstarting of the British economy after a sluggish period will boost the prospects of most of the FTSE 100 companies which will see increased demand for their goods and services as they will be faced with an increasing number of business opportunities. From the Investors’ perspective also the casting aside of the dark and choppy business headwinds will prompt them to take fresh positions in the equity markets of the United Kingdom which, after a long period of depressed trading sentiments, has sent the valuations of most of the fundamentally sound stocks to rock bottom levels, making them excellent value picks for investors.
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