A less turbulent European debt crisis and improving global economic prospects are expected to help Britain's FTSE 100 share index rise a further 5 percent from current levels by the end of 2012 after a mid-year reverse, according to a Reuters poll. The median forecast given by 19 equity strategists in the survey conducted over the past week predicted the FTSE 100 would end the year at 6,100, having risen 4 percent so far this year to 5,808.99 by the close of trade on Wednesday.
The last poll in December had predicted the FTSE would end 2012 at 5,600 points but investor sentiment has since improved as politicians get to grips with the euro zone crisis and evidence emerged of a pick-up in economic activity in the United States, the world's largest economy and a key source of earnings for many FTSE 100 companies. But strategists warned recent gains may prove difficult to hold onto in the short term and the FTSE is expected to fall as low as 5,695 by mid-2012, according to 12 of the analysts polled, as the effects fade from the European Central Bank's latest injection of cash into the banks through its Long Term Refinancing Operation (LTRO).
This is expected to leave equity markets exposed to profit taking, triggered by catalysts such as a possible deterioration in US economic indicators, a cloudier outlook for the Chinese economy and the resurfacing of Europe's unresolved debt problems.
"The boost from the LTRO liquidity has started to wane more recently," said Robert Quinn, chief European equity strategist at Standard & Poor's Capital IQ. "But as long as government bond auctions are well bid in both Italy, where domestic banks' purchases have risen 10 percent over the past three months, and Spain (up 29 percent over the same period) then I believe that the Stoxx 600 (pan-European index) will close the year around 280 and the FTSE 100 at 6,100."
Spain appeared poised to be the next hot spot in the European debt crisis, after the country ripped up a budget deficit target agreed with Brussels, sending Madrid's borrowing costs up markedly and sparking fears of contagion to Italy. "I think the European debt crisis is going to come to the fore again," David Morrison, market strategist at GFT Global, said.
"We've already seen Spain picking up. I think these (issues) are going to weigh on the markets in the next three months." Economic data and corporate earnings reports from the United States are also expected to continue to be a powerful driver for share prices over the coming months despite a more uncertain picture on this side of the Atlantic. Earnings momentum among UK-listed companies remained negative, with a 0.6 percent cut to mean analyst estimates in the last 30 days, compared to a 0.2 percent upgrade for the US S&P 500 index, Thomson Reuters Startmine data showed.