Charles Stanley experts comment as FTSE 100 breaks 6500 level

The six-year high of the FTSE 100 index is good news for investors and is accompanied by some strong indicators of future stock market growth, according to investment experts at Charles Stanley:

shares are currently good value: the price-earnings ratio of the market is currently lower (at 13.9) than at the FTSE’s lowest point in March 2003 (when it was 15.7);

the flurry of mergers and acquisitions as well as private equity activity may lead to the market being over-bought, but not over-valued;

the next milestone for the FTSE will be 6574 -the index stood at exactly half this level (3287) at its lowest point in March 2003; and

the FTSE All-Share is the index to watch - it is currently trading at all-time highs.

Charles Stanley economist Edward Menashy said: “The resurgence of the UK and European stock markets to capture the lost ground forfeited after the February setback sends out the message that the prospect for a recession has significantly reduced. On interest rates, there is a strong possibility that both the Monetary Policy Committee in the UK and the European Central Bank could be just one further interest rate hike away from the peak of the cycle. Although growth in corporate earnings is slowing, the financial position of the corporate sector remains strong and is reflected in share buybacks, higher dividend payments and a record level of merger and acquisition activity. Significantly, despite the 100 per cent rise on share prices since March 2003, the current price/earnings ratio (13.89) is lower than at the market low (15.7), signifying that profits have risen faster than share prices.

"With the economic expansion set to continue, and with it the flow of profits and dividends, the prospect of challenging the previous all-time highs has significantly improved" , concludes Edward.

Bill McNamara, editor of Charles Stanley daily Traders Bulletin and technical analyst said: “Investors in UK equities will undoubtedly be encouraged. Although this level is not particularly significant from a technical point of view (in as much as it has not acted as major support or resistance in the past) it will, however, be worth celebrating when the leading index hits 6574. Reaching that level will mean that the FTSE has doubled in value since the dark days of March 2003.

“Of course, even now the 100 share index remains well below its 1999 peak, at 6930, so it is worth highlighting the fact that FTSE All Share Index (which is more representative of the general health of UK plc) has recently broken through resistance and is currently trading at all-time highs - a clear indication that the rally which began nearly four years ago continues to display good breadth.”