In 2023, the FTSE100 has shown underperformance compared to other global benchmark indexes such as the DAX, S&P500, and Nikkei. While the FTSE100 reached a record high earlier in the year, it has struggled to maintain momentum, with the index slipping back into a range after a brief pop to new highs. Despite not being a total return index like the DAX, the FTSE100 has performed better on a total return basis. However, global investors seem to lack enthusiasm for the UK stock market, especially in comparison to its peers.
The strong performance of stock markets in 2023 can be attributed to the central bank rate cutting cycle that began in the summer, with cuts from the ECB, Federal Reserve, and Bank of England. However, the recent performance of bond markets suggests that the rate cutting cycle may be nearing its end, as yields have gone higher. In the UK, yields rose across the board after the recent budget, indicating a shift in rate cut expectations for 2025.
Despite the underperformance of the FTSE100, there have been some notable winners within the index in 2023. Rolls-Royce and Marks & Spencer have seen significant share price gains due to their turnaround stories. On the other hand, companies like JD Sports, B&M European Retail, and housebuilders Vistry and Barratt Redrow have experienced declines of over 20%. Vistry’s shares plunged due to an accounting issue and profit warnings, while Barratt reported a sharp drop in revenue and profits in September.
Rolls-Royce has seen a remarkable turnaround under CEO Tufan Erginbilgic, focusing on cost-cutting and core business areas. The continued recovery in its civil aviation business has led to better-than-expected profits and revenues, helping the company regain its investment grade credit rating. Marks & Spencer has also maintained momentum by reconnecting with its customers, leading to an increase in revenue and profit.
Looking ahead, if the FTSE100 can hold above recent lows and continue the current momentum, there is potential for the index to move towards 9,000. Despite the challenges and underperformance faced by the UK stock market, there are opportunities for growth and success for companies that are able to adapt and thrive in changing market conditions. Investors will need to remain selective in their choices and monitor market developments to make informed decisions.
