FTSE 100 closes at record as miner surge

The FTSE 100 set a closing high on Wednesday, capping a remarkable year for London’s blue-chip index that has been lifted by the mining sector and a falling pound.

On the City’s first day back after the Christmas holiday, the FTSE 100 rose 0.5 per cent to close at 7,106.08, surpassing the previous closing high of 7,103.98 that had stood since April 2015.

Although London based, investors say the large number of multinational companies on the index has left the FTSE 100 as one of the chief beneficiaries of hopes that the global economy will strengthen next year. At the same time, sterling’s weakness has polished the profits of those UK-listed companies with significant dollar earnings.

“The market is more optimistic about the prospects for the global economy,” said Rory Bateman, head of European equities at Schroders “The UK has weathered Brexit better than expected and in the US you have the Trump effect boosting expectations for looser fiscal policy. These are positives for investors.”

As they have done for much of 2016, mining stocks did the heavy lifting on Wednesday.Anglo American shares rose 3.5 per cent to 1,165p, while those of rival BHP Billiton climbed 4.3 per cent to 1,311p.

After a calamitous 2015, the mining sector has been catapulted higher by the recovery in industrial metals because of stronger than expected growth in China and cuts in supply from the industry. The London Metal Exchange index of six metals has returned 21 per cent this year.

With a gain of almost 14 per cent this year, the FTSE 100 has outpaced Europe’s benchmark equity index, the S&P 500 and Japan’s Topix. However, when measured in dollar terms, the index is down almost 6 per cent this year given the sharp fall in sterling since Britain voted for Brexit.

For some investors that sterling weakness will herald more acquisitions of FTSE companies next year. “Whilst we saw unusually large amounts of M&A in the FTSE 100 in 2016, the market appears to be anticipating further M&A in 2017 driven in part by the weakness of sterling,” said Mark Martin, head of UK equities at Neptune Investment Management.

Wednesday’s record close fell short of the index’s intraday high of 7,129.83 touched in October.

It is a sharp contrast to investors’ anxiety in the immediate aftermath of the Brexit vote, when banks, homebuilders and retailers were among the hardest hit. The index recovered its decline within a few days, as investors began to price in the effect of the pound’s fall on an index whose companies generate about 70 per cent of their revenues outside the UK.

With miners dominating the ranks of the biggest gainers on the index this year, the outlook for commodities will also be key to whether the FTSE 100 can sustain its rally into 2017. Analysts at Macquarie say the need for China to sustain economic growth will be key.

“Global manufacturing continues to recover, while the Chinese government has repeated their desire for market stability, which necessitates ongoing focus in infrastructure spending,” the analysts noted.

The FTSE 250 index of mid-cap companies was also lifted by the performance of mining companies, led by Hochschild Mining, which rose 5.5 per cent on Wednesday.

However the index, which relies more heavily on the UK for revenue, has not matched the performance of the FTSE 100 and is up 3.3 per cent on the year.