LONDON (Reuters) - Britain’s top share index is set to rise nearly 13 percent by the end of 2016 from current levels, according to analysts polled by Reuters in the past week, although the latest forecasts are sharply lower than those made just three months ago.
Strategists cut forecasts for the commodity-heavy British share index because of lingering concerns about the mining sector’s outlook following a slump in commodity prices, the likely start of a U.S. rate hike cycle and uncertainties about whether Britain will leave the European Union.
A Reuters poll of nearly 40 traders, fund managers and strategists gave a median forecast for the benchmark FTSE 100 index of 6,250 points by the end of 2015, 6,400 points by mid-2016 and 6,700 points by the end of next year.
In early October, a poll produced a median forecast for the FTSE 100 to end 2015 at 6,500 points, rising to 6,700 by June 2016 and advancing to 6,989 by the end of 2016.
The index, which finished 2014 at 6,566.09 points, is down more than 9 percent so far this year, having closed on Friday at 5,952.78.
“I am cautiously optimistic for 2016. We have got some tailwinds like an encouraging economic climate and improving consumer spending, but the FTSE 100’s heavy reliance on commodities and ‘Brexit’ concerns could limit its gains,” Securequity senior trader Jawaid Afsar said.
A Reuters poll published last week forecast Britain’s economy would produce solid growth next year, although the outlook was also clouded by doubts over Britain’s EU membership.
British Prime Minister David Cameron has promised to hold a referendum on a possible “Brexit” before the end of 2017. With the last few opinion polls showing a slim majority wanting to leave, Britain’s membership is on a knife edge.
Analysts said mining and energy stocks, which account for more than 20 percent of the FTSE 100, could come under further pressure because of a bleak outlook for metals prices in the wake of worries about the pace of economic growth in top consumer China.
The UK mining index has slumped about 50 percent this year as prices for metals and other commodities have hit multi-year lows, while the oil and gas index is down around 25 percent.
“The heavy mining contingent is likely to continue to make life difficult for the FTSE 100, and buying the index as a whole looks to be a relatively unpromising idea,” IG analyst Chris Beauchamp said.
“Instead, the European markets look more attractive, as the European Central Bank’s quantitative easing programme continues and the euro continues to weaken.”
The poll predicts the broader STOXX Europe 600 index will gain nearly 14 percent by the end of 2016.
Editing by Lisa Barrington
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