A few months ago our sister title Investor's Week asked a number of fund managers where they thought...
A few months ago our sister title Investor's Week asked a number of fund managers where they thought the FTSE would be at the end of the year. Most agreed on a level of between 5,000 to 5,500. Then came 11 September and the freefall in world markets.
However, as some predicted, a rally took hold that pushed the index to a level more than 6% above its close on 10 September. Having breached the 5,000 barrier and so far held firm despite the start of war in Afghanistan, the question again hangs in the air: now what?
Vodafone is largely to thank, or blame if you were betting against the index rising, for the FTSE's gains, putting on 39p by 9 October since its three-year low of 124p on 11 September. That is a 30% gain, nearly equivalent to the 40% rise in first-half earnings before interest tax, depreciation and amortisation that the company is rumoured to be reporting in the near future.
The UK telecoms giant accounts for 10% of the FTSE 100 index and its steady decline over the past year has been one reason why rallies have not yet been sustained. But if Vodafone has turned the corner, it could be time to call the bottom.
It did Vodafone no harm that analysts at investment houses such as Goldman Sachs and Lehman Bros raised earnings forecasts following the switch earlier this year from spending to gain new subscribers to spending on new services that come with higher margins.
According to analysis outlined by broker Killik & Co this week, this is the sort of changes to earnings that investors should expect in the medium to longer term and is the sort of reason why now is not the time to panic over whether the rally will hold or not.
Many hands were sat on during the second quarter of the year, but events now mean investors could be courting more disaster by not setting their portfolios up ahead of another bull run in the market.
As Killik's Paul Kavanagh and Justin Urquhart-Stewart point out, most companies will do everything they can to bury bad news in their third-quarter results due out over the next few weeks.
That might raise fears that newsflow is about to get much worse, but that would be to disassociate oneself from the fact that the market has held up despite the events of 11 September, despite the collapse of Marconi, despite the humiliation that is Equitable Life, and despite the renationalisation of Railtrack.
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