Why the FTSE is enjoying a winter uptick
Amid AI bubble worries, London’s FTSE is luring in American investors seeking greater diversification, writes Susannah Streeter in this week’s Notebook
FTSE basks in winter sunshine
January has been stormy in more ways than one – but the FTSE is shining in a big patch of winter sun. The blue-chip index has passed the 10,000 mark in footloose fashion, with the psychologically important level looking increasingly like the new floor. Even with this spurt of growth, the FTSE 100 can still be considered a value play, given that earnings expectations for the big, listed multinationals are far less stretched than those on other international indices, especially in the US.
It’s not surprising that UK stocks are providing more allure for American investors, in particular those seeking greater diversification from US tech giants amid AI bubble worries. It’s also been boosted by a share buyback trend, returning more value to shareholders.
But there are plenty of hazards ahead and there’s a reason for the surge in prices of mining and defence stock prices – the geopolitical risks hanging heavy in the air. These have hastened the search for safe havens, pushing up precious metal prices, while nations are expected to rapidly increase military budgets. The threats are real, and unpredictable especially with erratic policymaking from the White House. Given the instability across continents, a big shock cannot be ruled out, which would create a big bout of volatility. Although the worst of the tariff effects on the US economy have not materialised, there’s potential for deteriorating data down the line, which would also upset investor sentiment towards international companies reliant on America’s economic health.
For now though, the risks are providing upside, and this could create a tailwind for smaller UK-listed companies too, as investors attempt to unlock value in previously unloved assets. As the FTSE giants bask in the sunshine sought by international investors, it’s more likely that sentiment towards mid and small caps will also improve.
Inclement weather for VCTs
There’s an inclement wind though blowing across the venture capital landscape, a vital source of funding for UK start-ups and scale-ups. The reduction of the upfront income tax relief from 30 to 20 per cent announced in the Budget blindsided companies reliant on these streams of support. There are hopes that money would be channelled into other schemes like the Enterprise Investment Scheme (EIS), but this could be wishful thinking. Research from Wealth Club shows that the vast majority of investors plan to reduce or stop VCT investment altogether. Just 13 per cent said they would divert those contributions into EIS. The government claims it wants to make Britain the best place to start and scale firms. But these changes to tax relief for investors willing to take a risk on funding British businesses look set to do the opposite.
Musk’s tornado of criticism
Elon Musk’s entrepreneurial energy has taken him to stratospheric levels of fame and fortune, but once again his cavalier attitude towards business has dragged one of his companies into a fresh tornado of criticism. Allowing xAI’s chatbot Grok to virtually undress people, presenting them in non-consensual sexualised images for all to see on his social media platform, has rightly led to uproar and demands for a fresh boycott. One thing’s for sure – he may finally have found a way to drop the name Twitter, as his platform has truly achieved X-rated status. I would concur with Jimmy Wales, the founder of Wikipedia who had some advice for Musk: “That electric car idea was a good one. You should go back to that.’’
Hurricane conditions for female founders
Founding a successful company is no breeze. But for women, it’s often like a marathon hike in hurricane conditions, especially when they appear to be set a higher bar than male founders. Linkedin has been lit up with indignation at news headlines focusing on a £2.6m loss for Tala, the gym wear brand founded by Grace Beverley in 2019. Revenue has also grown 19 per cent to just shy of £20m, the firm boasts a gross profit margin of 58 per cent and this young company is still clearly in growth mode. Let’s remember just how long it took for Tesla to become profitable – 17 years. We should ditch the double standard and celebrate entrepreneurs of all genders who are willing to take calculated risks to succeed. It’s interesting to note that Pembroke VCT increased its stake in Grace Beverley’s business in 2024, a vote of long-term confidence in its prospects.
Cornish entrepreneurs storm ahead
I spent last weekend in Cornwall, as the devastating storm Goretti receded, and was struck by the can-do attitude of the community in rapidly restoring order and getting back to business. Because of its isolated position, the county is a hotbed of entrepreneurial spirit, with founders emboldened to pursue their projects because of the lack of heavy industry and big company footprints. It’s been heartening to see how rapidly Finisterre has developed since I interviewed Tom Kay back in 2013, with the surf and outdoor brand making e-commerce waves across Europe from its base in St Agnes. Every time I visit, I meet another dedicated visionary. This time it was our waiter, an arctic geographer turned film producer, intent on finding funding to see his movie headlining at a new Cornish film festival. Yeghes da! to that and to all founders daring to dream big.
Susannah Streeter is chief investment strategist for Wealth Club