What next for the FTSE 100?

What next for the FTSE 100?

What about value? Obviously shares are not as cheap as they were. But let’s remind ourselves that the FTSE 100 index dividend yield is 3.5pc. That is not bad with inflation under control. The yield is good compared with government bonds, which offer the same rate of interest. A “normal” valuation would have shares yielding less than gilts to adjust for the fact that the dividends rise over time with economic growth and inflation. On this basis, shares are certainly not overpriced.

As for those who focus on valuations based on profits made in the past 10 years, they are worrying too much. Profits since 2008, especially, have been under the cosh. Many businesses have been struggling to survive, let alone make profits since the crisis. It makes more sense to look at profits now. On this basis, British shares are not expensive. I, for one, am staying fully invested.

The statement that has impressed me most recently was made by Jim O’Neill, former chairman of Goldman Sachs Asset Management. He said the growth rate of the world economy in the current decade would be higher than in the previous three decades. The eurozone is in a miserable state but is fading as a place of importance. China and other fast-growing parts of the world have taken up the running. China’s growth is not as rapid as it was, but its economy is so big that even reduced growth will have a major impact. Mr O’Neill said that if China grew at 7.5pc a year, it would have the same impact on the world economy as the US growing at 4pc.

His perspective on the big picture has encouraged me to continue moving my own investments into mining and other commodity shares. There is large scope for a turnaround in sentiment in commodities in the next three years or so. The mining company BHP Billiton, for example, has an expected dividend yield of 4pc even before any rise in metal prices occurs.

But some of the old dogs of this bull market still have life in them, too. My biggest holding continues to be Enterprise Inns, a pub-owning company. The shares have come up a long way and have been a big factor in making 2013 a good year for me. Even now, at 141p, they stand at 7.4 times forecast earnings per share for next year. The overall market is at 13 times.

Does anyone think 7.4 times is expensive? And the company’s forecast net asset value is more than double the share price at 300p. People used to worry about its borrowings and whether it might breach its banking covenants. But such concerns are over now. I think there is still plenty to go for.

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