A new research note from strategists at Citigroup created a buzz by suggesting that the FTSE 100 index of leading UK company shares could double in value over the next decade.
With the FTSE 100 hovering just under the 6,000 level recently, could we really see the index break through 12,000 by 2022?
Citigroup made this bold call based on several factors.
They refer to history which tells us the best investment opportunities tend to arise when the economic outlook is most grim.
Citigroup notes that the FTSE 100 is already doing very well despite such poor economic conditions. What could happen to its performance if the economic situation dramatically improved?
The long-term value in the index, established by analysing the cyclically adjusted price/earnings ratio, suggests that double digit annual returns are available to investors in the index over the next decade.
They also view the UK stockmarket as likely to support shareholder friendly measures, such as higher dividends and share buybacks, further supporting the level of the market.
Suggesting that the FTSE 100 index could double in value over the next decade is a very brave call.
Ten years of continuous earnings growth and rising share prices would certainly please investors. Of course there is no way of knowing whether a forecast like this will be accurate until after the event.
Whilst the end result could very well look as predicted by Citigroup, equity investment is full of short-term risk and investors hoping to experience any rise in the value of the FTSE 100 over the next decade should be prepared for volatility.
There is nothing wrong with being bullish; it does however make sense to ensure you have appropriate levels of diversification in your portfolio rather than placing bold bets on a single market or asset class.
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