Goldman Sachs anticipates a positive turnaround for UK stocks, projecting a gain of approximately 7% for British blue-chip companies in 2024. While global equities experienced a substantial rally in 2023, with US and European markets witnessing gains between 20-30%, the FTSE 100 index of large-cap London-listed stocks only saw a modest increase of 4%. This can be attributed to the negative impact of the commodities market and China exposure, according to a team of analysts at Goldman, led by Sharon Bell.
Similarly, the mid-cap FTSE 250, which relies more heavily on the UK market, saw a meager 4% rise due to a weakened domestic economy, lack of merger and acquisition activity, and a struggling real estate sector. Over the past few years, the UK stock market has fallen out of favor, resulting in companies buying back shares on an unprecedented scale and a scarcity of initial public offerings.
Goldman Sachs acknowledges that there are certain structural barriers that could continue to limit potential gains. For instance, companies' extensive share buybacks have led to a process of de-equitizing, while regulations have compelled pension and insurance firms to retreat from public equity. Additionally, relatively few domestic buyers are investing in UK shares as households demonstrate low levels of stock ownership.
However, despite these obstacles, Goldman Sachs remains optimistic about the outlook for 2024. Notably, inflation has subsided more quickly than anticipated, prompting a corresponding decrease in interest rates set by the Bank of England. The bank's economists predict that the BoE will start lowering rates in May 2024, gradually reducing them at a pace of 25 basis points per meeting. As a result, forward policy rates in December 2025 have declined by approximately 140 basis points since the end of Q3 in 2023.
Goldman Sachs believes that the decline in borrowing costs will provide a boost to household incomes, especially for those with mortgages, given the prevalent variable interest rates in the UK. Additionally, softer inflation is expected to contribute to real income growth, further enhancing the positive economic climate.
In conclusion, while the UK stock market has encountered various challenges, Goldman Sachs foresees a more favorable landscape in 2024. The projected decline in interest rates and associated economic factors suggest that British blue-chip stocks have the potential to regain momentum and yield promising returns.
FTSE 100 Outlook Positive for 2024
Goldman Sachs has expressed optimism for the FTSE 100, citing several factors that are likely to boost the index. These include a low valuation, improving global demand, and limited supply. The investment bank predicts that the FTSE 100 will climb to 7,900 by the end of 2024.
On Monday, the Footsie experienced a slight decline of 0.3%, closing at 7,666. This drop was primarily driven by struggles in the energy sector, as oil prices dipped and Shell announced potential earnings losses of up to $4.5 billion due to impairments.
The market response to the quarterly results teaser from Shell was tepid at best. Investors were unimpressed by Saudi Arabia's decision to cut crude prices, which dampened overall sentiment towards the sector. Russ Mould, AJ Bell's investment director, commented on the situation.
London-listed mining companies, including Anglo American, BHP, and Antofagasta, also faced declines. Concerns arose about a potentially slowing Chinese economy reducing demand for these commodities.
In contrast, UK spread-betting and investment platform group CMC Markets saw a significant boost in its shares. The company expects its net operating income for fiscal year 2024 to range between £290 million and £310 million ($369 million-$394 million). This revised forecast surpasses their previous estimate of £250 million-£280 million.
Looking beyond the UK, the overall mood in Europe was mixed. Germany's DAX index rose by 0.3%, while France's CAC 40 remained relatively unchanged. In terms of currency, both the euro and pound experienced minimal fluctuations compared to Friday's closing levels. Meanwhile, German 10-year bund yields, the continent's benchmark, rose by 4.8 basis points to 2.208% in line with their US counterparts.
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