J.P. Morgan Fund Manager

FTSE 100 earnings poised for positive growth

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Jun 19, 2017
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Over the past five years, the FTSE 100 Index has delivered a return of more than 70%*. But the earnings of its constituent companies have actually fallen over that same period, languishing at zero or negative for each of the past five years. Now, in 2017, the tide looks set to turn via a return to positive growth, with consensus forecasting to a 17% rise over the next 12 months*. Earnings growth underpins market valuations, so this increase is significant.

Looking ahead to the rest of the year there are two key drivers of earnings growth to watch out for. 

The currency contribution

First, there’s the currency factor. Since the referendum in June last year, sterling has fallen by 14% on a trade-weighted basis. With 70% of the FTSE 100’s earnings generated overseas, this effectively represents a 10% boost to earnings. As Theresa May’s minority government begins negotiations with the EU in coming weeks, the perceived success of these talks will be quickly reflected in currency markets, with implications for the relative performance of overseas earners versus domestic companies.  

M&A activity matters

Second, there’s M&A activity. A cheap currency and cheap credit can make deals highly accretive to earnings per share, a kicker that is not currently factored into forecasts. We have seen plenty of evidence of this in the UK year to date, with a very active M&A market not restricted to any one particular sector. We expect this elevated level of activity to continue.

In our UK Equity Growth fund it’s important to consider what level of growth is already anticipated in share prices and look for positive surprises. Energy stocks are a prime example.  Despite high expectations for earnings growth over the next 12 months due to recovering oil prices, earnings revisions have lagged the market. On the other hand, despite lower absolute growth expectations, financials continue to surprise on the upside with improving outlooks for future growth. Additional pockets of unanticipated growth are also coming through in cyclical sectors such as industrials, support services and travel & leisure.

  

Kyle Williams is portfolio manager of the JPM UK Equity Growth Fund. Read more >

  

*Source: Bloomberg as at 31.05.17. For Professional Clients/ Qualified Investors only – not for Retail use or distribution.This document has been produced for information purposes only and as such the views contained herein are not to be taken as an advice or recommendation to buy or sell any investment or interest thereto. Reliance upon information in this material is at the sole discretion of the reader. Any research in this document has been obtained and may have been acted upon by J.P. Morgan Asset Management for its own purpose. The results of such research are being made available as additional information and do not necessarily reflect the views of J.P. Morgan Asset Management. Any forecasts, figures, opinions, statements of financial market trends or investment techniques and strategies expressed are unless otherwise stated, J.P. Morgan Asset Management’s own at the date of this document. They are considered to be reliable at the time of writing, may not necessarily be all-inclusive and are not guaranteed as to accuracy. They may be subject to change without reference or notification to you. Both past performance and yield may not be a reliable guide to current and future performance and you should be aware that the value of securities and any income arising from them may fluctuate in accordance with market conditions. There is no guarantee that any forecast made will come to pass. J.P. Morgan Asset Management is the brand name for the asset management business of JPMorgan Chase & Co and its affiliates worldwide. You should note that if you contact J.P. Morgan Asset Management by telephone those lines may be recorded and monitored for legal, security and training purposes. You should also take note that information and data from communications with you will be collected, stored and processed by J.P. Morgan Asset Management in accordance with the EMEA Privacy Policy which can be accessed through the following website http://www.jpmorgan.com/pages/privacy. Issued in Europe (excluding UK) by JPMorgan Asset Management (Europe) Société à responsabilité limitée, European Bank & Business Centre, 6 route de Trèves, L-2633 Senningerberg, Grand Duchy of Luxembourg, R.C.S. Luxembourg B27900, corporate capital EUR 10.000.000. Issued in the UK by JPMorgan Asset Management (UK) Limited which is authorized and regulated by the Financial Conduct Authority. Registered in England No. 01161446. Registered address: 25 Bank St, Canary Wharf, London E14 5JP, United Kingdom. 301b6710-54dc-11e7-ab05-005056960c63

Go to the profile of Kyle Williams

Kyle Williams

Portfolio Manager, J.P. Morgan Asset Management

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