HAMISH MCRAE: We have reason to stay bullish

About time too! On Friday the FTSE 100 index at last pushed back up through the 7,000 mark. That sounds great until you recall that it started last year above 7,600, and that its peak back on May 22, 2018 was 7,877. That’s still a long way to go.

Contrast this with what is going on elsewhere in the world. In the United States, the Dow Jones closed on Friday at 34,201 and the broader S&P 500 at 4,185 – both all-time records.

Germany and France? Same message: all-time highs. Over the past year the German DAX is up 50 per cent and the French CAC is up 45 per cent, while our poor Footsie is up only 25 per cent.

Rebound: On Friday the FTSE 100 index at last pushed back up through the 7,000 mark

How to explain this? Well, as argued here before, it is partly a matter of the UK being out of fashion. The tidal flow of negative comment about Britain, its economy and its politics, over the past few years will take some time to ebb.

But it is also about fashion in investment. The Footsie is over-weighted with the shares of companies in financial services and resources – banks, insurance, mining and oil – and short of high-tech enterprises.

There have been signs of a shift in sentiment and that shift is long overdue. But it has yet to gain traction. The result is that many investment advisers are saying that UK shares are great value.

For example a current advert on Reuters by JPMorgan Asset Management declares: ‘The stars are aligned for UK equities. We believe a rare set of events have combined to make the UK equity market a highly attractive prospect right now.’

However the case for investing in the UK has to fight against the negativity of, among others, no less than the chief executive of JPMorgan Chase, Jamie Dimon. He is threatening to move more bankers out of the City to European financial centres.

He declared last week that the EU ‘has had, and will continue to have, the upper hand’.

We’ll see about that. My own view as far as the financial services industry is concerned is that there will indeed be some loss of EU business to European centres, and that will impose some costs on European companies which will have to pay for their finance.

But what matters are new lines of businesses and the City will be better able to generate these now that it is free of EU regulation. However this will take time.

The immediate question is not about what happens to the City but what happens to the world economy. Here, we are getting clarity. There is a boom gathering pace and that will continue through the summer and beyond.

We inevitably focus on the UK, where we have had a week moving closer to normality, but this really is a global story led by the US and China. In the US they have retail sales up in March nearly 10 per cent, housing stats the highest for more than a decade, unemployment down from nearly 15 per cent a year ago to 6 per cent.

And in China, if we believe the figures, the economy grew at more than 18 per cent in the first quarter. If the world’s largest and second largest economies soar, that tends to pull along everyone else. Even the laggards will eventually scramble back up.

But clarity about the world economy does not necessarily bring clarity to asset prices.

Share prices are booming not only because the world economy is growing strongly. They are booming because we are in one of those heady bull markets, fuelled by the central banks, where just about every investment, however outlandish, will bring a profit.

These can go on for quite a while, and I think this one will.

Timing the end of a roaring bull market is one of the hardest things in the world. But for a little perspective, consider this.

Back in 1999 two Americans, James Glassman and Kevin Hassett, published a bestseller about Wall Street. It was called Dow 36,000: The New Strategy For Profiting From The Coming Rise In The Stock Market.

It predicted: ‘Stocks are now in the midst of a one-time-only rise to much higher ground – to the neighbourhood of 36,000 on the Dow Jones.’

Well, that has taken a while. I do believe UK shares now offer good value and the Footsie will reach new all-time highs this year. But I also know all bull markets eventually end.