FTSE 100 Stocks Sideways After Two Decades: Strike A Pound Now?

FTSE 100 Stocks Sideways After Two Decades: Strike A Pound Now?

A turnaround after the BREXIT chaos seems possible. As such, investing in FTSE 100 stocks could be particularly attractive now.

A Swiss person who invested in the British leading index FTSE 100 in mid-2000 subsequently experienced a proud 22 years of sideways movement. So today he still has as many British pounds as he used back then.

In the meantime, there were still dividend payments in the range of 3%. But the problem is this: on June 30, 2000, the British pound was still worth 2.47 Swiss francs. Parity is within sight today. This is not how long-term investing is fun.

But wait, there’s another trick here: we chose the end of the phenomenal stock market boom of the late 1990s as the starting point. And today, many market watchers believe we are near the bottom of a stock market downturn.

Should the FTSE 100 turn higher at the same time as the pound recovers, investing now could yield brilliant returns. And not with any windy newcomers, but above all with long-established and proven heavyweights like Shell (NYSE:Shell), AstraZeneca (NYSE:AstraZeneca), Unilever (NYSE:UNILE), and HSBC (NYSE:HSBC).

But before deciding to buy, let’s be sure that chaotic British politics will not capsize the shaky ship. So what’s going on on the island?

The UK after Brexit

One could almost be a little gloating about the post-Brexit turmoil Britain is experiencing. They wanted to break free from the shackles of mainland Europe to take their destiny into their own hands and rise to the international beacon as Global Britain.

Pandemic and recession drastically slow down the ambitions. It was almost foreseeable that there would initially be major frictional losses. It would therefore be too early to make a judgment on this now.

It’s quite possible that after all this chaos, the elements will rearrange themselves and be better. For this, however, the new king and his new prime minister must do a good job. The British analyst Owain Bennallack recently described the situation perfectly. Liz Truss faces a long to-do list of urgent and complex challenges:

The Russian War in Ukraine

  1. The unresolved question of Northern Ireland and Scotland’s struggle for independence
  2. The supply crisis and skyrocketing cost of living
  3. The faltering healthcare system
  4. The fight against rising sea levels and the increasing number of natural disasters
  5. In addition, there is the processing of scandals in British politics and the improvement of battered relations with its neighboring countries.

That’s actually more than one person can afford. In addition to the Russian aggression, she initially focused primarily on containing the energy crisis for citizens and companies in order to avert a wave of bankruptcies. After the pandemic has already required many billions in new debt to be taken on, this adds another huge amount.

When it comes to the foreign trade deficit, the UK is now at almost minus 8% of gross domestic product (GDP). The debt level was last measured at 96% of GDP, but is likely to exceed 100% in these months. This is the highest level since the 1960s and requires countermeasures to be taken soon, for example through higher taxes or cuts in spending.

The third – and most dangerous – lever is currency devaluation. The UK has the highest inflation rate of any major developed country but is lagging behind in productivity given volatile market conditions.

The central bank is taking countermeasures with rising interest rates, but at the same time expects a recession. Rising interest rates and falling GDP make debt servicing doubly difficult.

Are the UK and the FTSE 100 on the brink?

The situation may seem more dramatic than it actually is. For example, rising interest rates only have a significant impact on debt service after several years, since the maturity profile of the outstanding government bonds is spread over decades.

However, the government should not play with fire and restore confidence in the British economy and sterling. The English, who once loved to travel, will soon be unable to buy anything else abroad.

And an investment in FTSE 100 stocks is probably only worthwhile if the currency stabilizes. Although it is fair to say that many of the index heavyweights are so internationally positioned that they can shrug off specific British problems. They may even benefit somewhat from the reduced personnel costs at headquarters.

Samuel Edwards
Samuel Edwards is the name you must have heard many times while reading reports related to Finance, that's what he is good at. From Major Investments to Stock Market Updates, he got 'em all. Be ready to blow your mind by the mind-blowing reports of Finance World from Samuel Edwards.