3. Other commodity exposure
The FTSE 100 is also heavily exposed to non-oil commodity stocks like Rio Tinto, Glencore, Anglo American and Antofagasta.
Commodity prices have been strong, supported by Chinese stimulus expectations and concerns about global supply.
Commodities provide another source of earnings that has nothing to do with the AI boom.
4. Resilience to higher bond yields
Rising interest rates negatively impact the valuation of growth companies so fears that the Federal Reserve may raise rates two or three times over the next year or so provide a headwind for tech stocks.
Higher borrowing costs are much less of a problem – even a positive – for the banks which make up another big part of the UK index.
HSBC, Barclays, Standard Chartered, Lloyds and NatWest all stand to benefit from wider lending margins and stronger net interest income.
5. Cheap valuation
The FTSE 100 remains at a significant valuation discount to the US on the key metrics. It offers investors both a lower price/earnings ratio and a higher dividend yield.
According to Goldman Sachs, the FTSE 100 trades at 12.5 times expected earnings compared to 20.1 times for the S&P 500.
The UK benchmark’s average dividend yield is 3.5% versus 1.4% in America.
6. Political stability
While it is too early to tell how markets will judge the new government under Andy Burnham, it is fair to say that the initial response has been favourable.
Although he has only been Prime Minister since 20 July, markets have been pretty certain that he would succeed Sir Keir Starmer since he won the Makerfield by-election on 18 June.
Since then, the 10-year government bond yield (a key measure of the market’s view of the government’s fiscal prudence) has fluctuated between 4.7% and 5.1%. It stood at 4.75% the day before the by-election and is 4.99% at the time of writing.
It should be remembered that government bond yields are also influenced heavily by global factors such as geo-political uncertainty and inflation expectations.
Since the by-election, the FTSE 100 has risen by 3.4%.
