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Flagship UK stock market, i FTSE 100it currently sits above 8,000 points. When I assess where it may be headed in the next year, I often play a game with my friends of having an equal estimate of the range of a stock or index above and below the current price.
Then I think about what seems to me the most logical, I try to support it with certain ideas, and then I consider where to invest.
Here’s my take.
Important considerations
First, let’s look at historical performance. The FTSE 100 finally reached 6,000 in late 2020, as it tries to recover from the pandemic crisis from earlier that year. The index has never traded above 10,000 points. Instead, the all-time high is just shy of 8,500 points, posted in Q2 of this year.
Over the past decade, the average annual return has been 6%. If I were to assume that the percentage remains the same next year, it is unlikely that we will reach the target level.
In my opinion, we are more likely to hit 10,000 points before 6,000. One reason is that the long-term trend of the market is higher. Sure, we’ll have blips along the way. But basically, history shows me that the index is going up.
Another factor is that the UK stock market has something to do with global markets. For example, the price-to-earnings (P/E) ratio is 15.1. When I look across the lake S&P 500the P/E ratio is 30.1. Therefore, I expect serious investors to start selling some of the more expensive US stocks and allocate money to the cheaper UK ones. This should help increase the overall index.
A helping hand
As for a particular stock that I think can help push the index higher, I like it 3i Group (LSE: III). The private equity and venture capital group has seen share prices rise 59% over the past year.
The company holds a portfolio of privately-listed equities in various businesses. It tries to make money by identifying market opportunities where it can buy and later sell for a profit. It is very similar to what an investment fund will do with public stocks. The key difference is that 3i invests in firms and not in the stock market.
In fiscal H1, the portfolio returned 10%. The CEO commented as such “The action has a significant impact on our profitability and continues to generate industry-leading growth”. I really like this, as managers working in what can be a tricky sector to navigate is clearly the way forward.
Another risk with private equity is that money can be locked up for long periods of time. Since the stock is not publicly available, it can be difficult to find a seller in a timely manner, which may cause operational problems. Finally, I have the stock on my watch list as a 2025 buy.
And although I think it may be a struggle for the index to reach 10,000 points next year, I certainly think we will be closer to the target than 6,000 in December 2025.
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