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BofA Merrill Lynch tips FTSE to hit 7,400 within 18 months
by Robert St George on Sep 12, 2013 at 11:09
A strong domestic recovery should propel the FTSE to 7,400 in the next 18 months, analysts at Bank of America Merrill Lynch have predicted.
The bank acknowledged that growth had long been sluggish – with the economy contracting by 7% in the aftermath of the 2008 crash and expanding at only around 1% a year since then – but pointed to a wealth of more positive indicators.
These included the Bank of England’s commitment to loose monetary policy until 2016, rising house prices, and the emergence of Europe from recession. From this, Bank of America Merrill Lynch estimated that the country’s GDP would grow by 2.2% in 2014.
This gave the team the confidence to maintain its FTSE target of 7,100 for mid-2014 – 8% higher than today’s level – and introduce one of 7,400 for the end of the 2014 financial year. The analysts added that the market capitalisation of the full UK equity universe could increase by 30% by 2015.
If it achieves this, the index will surpass the record high of 6,950 it hit in December 1999 at the height of the dotcom bubble.
At a stock level, Bank of America Merrill Lynch’s modelling favoured being overweight in sectors such as telecoms, retail and banks. ‘In our view, this optimises exposure to a domestic recovery within UK equities,’ the team explained.
The analysts equally recommended being underweight in industrials, chemicals, and other such ‘expensive global cycle plays’.
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