UK100

The Financial Times Stock Exchange Index of the 100 largest market cap stocks in the United Kingdom is the U.K.’s benchmark. All stocks inside the index are traded on the London Stock Exchange (LSE). The LSE is one the leading stock exchanges in the world and hosts around 50% of global stock trading. The index is calculated by the FTSE Group which is governed by Financial Times and LSE. This benchmark is among the most important for the European stock market.
The index has specific features a trader should consider:
- The FTSE 100 index includes companies that represent 80% of the market cap traded on LSE. It has a wider representation of the stock market than just British companies as it hosts such companies as AstraZeneca, BP, British American Tobacco, GlaxoSmithKline, Glencore, HSBC, Rio Tinto, Shell, and Unilever. Many companies within the index have more exposure on the international market and are not British. Their income is primarily in Euros, which extends the index exposure to GBP/EUR. Thus, the index is not a reliable gauge to measure the British economy, and is considered to be a European stock index;
- The index has large exposure to the global economy. GDP growth in the U.K. and the Eurozone, rising retail sales, business activity and investments in these economies, and a strong labour market all drive up the index. These drivers have a lasting effect on the index;
- The index has a strong correlation with the S&P 500 broad market index of the United States;
- The FTSE 100 is dependent on the monetary policies of the Bank of England and the European Central Bank. Monetary stimulus and low interest rates support the index. These measures increase consumer and investment activity, increase corporate profits and lower costs. The opposite direction of these factors, together with high inflation, have a negative impact on the index;
- The index is sensitive to high inflation. If it is far above the target of 2% in the U.K. and the Eurozone it will be a negative factor for the index, as central banks will be prone to tighten their monetary policies. The slowing down of inflation would be a positive factor for the index in this case;
- An inflation rate lower than the 2% target is also negative for the index as sales and demand stagnate. Thus, rising inflation to 2% is a supporting factor for the index; - FTSE 100 is a risky asset, and is vulnerable to risk appetite and investors’ sentiment. Positive economic and political perspectives, positive emotions, and a positive sentiment support the index. Otherwise, it will fall under pressure;
- The index is a highly diversified asset and is suitable for conservative and long-term investors. It has lower volatility compared to currencies, energies, and individual stocks;
- The index is linked to the European stock market’s opening hours, but futures and CFD trading on the index continue mostly throughout a 24/5 basis, excluding weekends. So, the index may open with a gap if something very important has happened during a weekend.