To The Moon

Britain's FTSE 100 edged up and hit all time high on Monday, as strength in mining stocks lifted the commodity-heavy index. The blue-chip index $FTSE 100(.UKX.UK)$ closed up 0.1%, trading above the 8,000-point mark.

In the tide of central bank roaring tightening, the global stock market almost wretched last year, the MSCI global index plunged 20% last year. The three major U.S. stock indexes all hit the largest annual percentage decline since the 2008 financial crisis, the $DJIA(.DJI)$ fell 8.78% last year, the $S&P 500(.SPX)$ fell 19.44%, the $NASDAQ(.IXIC)$ is a plunge of 33.10%.

The FTSE 100 index, which continues to set new record highs, also makes one wonder why the UK stock market is reaching new highs again? Can it continue to go higher in the future? What are the risks behind the boom that we need to be aware of?

Value stocks are making a splash behind the UK stock market's impressive performance

Structurally, the FTSE 100 has more energy, commodities, consumer staples and health care companies, with a dearth of technology stocks. The top 10 constituents of the FTSE 100 are $SHELL PLC(SHEL.UK)$, $ASTRAZENECA PLC(AZN.UK)$, $UNILEVER PLC(ULVR.UK)$, $HSBC HLDGS(HSBA.UK)$, $DIAGEO(DGE.UK)$, $BP PLC(BP..UK)$, British American Tobacco, $GLENCORE PLC(GLEN.UK)$, $RIO TINTO PLC(RIO.UK)$ and $GLAXOSMITHKLINE(GSK.UK)$.

Behind the record high in the UK stock market, energy, commodities, essential consumer goods and health care stocks are credited with the pull. The Russia-Ukraine conflict directly benefited energy and commodity companies, with BP and Shell both reporting record profits; the new crown epidemic kept the market focused on pharmaceutical-related companies, and drove the share price performance of pharmaceutical leaders such as AstraZeneca and GlaxoSmithKline. These weighted stocks drove the index to the upside. In addition, the weakening of the British pound led to a big increase in profits for British companies after converting overseas revenues back to pounds.

Can the UK stock market make further gains?

Although the FTSE 100 has hit a record high, it also faces a series of challenges and there is still uncertainty whether it can continue to reach new highs in the future.

On the plus side, the UK FTSE 100's P/E ratio is at 13.2x, which is lower than 15x for global equities. Moreover, the dividend yield of the FTSE 100 is close to 4%. Once the Fed's monetary policy turns in the future, the low valuation, high dividend yield, high internationalization and low pound of the UK stock market will become advantages, which will make the UK market more likely to be favored by international capital.

However, the weak economic outlook may become a disruptive factor. While commodity prices have fallen and Brent crude oil has fallen sharply from its highs, still high energy prices, higher import costs and higher mortgage and rental costs will further erode consumer confidence.

US-listed UK companies to watch

Energy: $SHELL PLC(RYDAF)$, $BP PLC(BP)$

Consumption staples: $Unilever PLC(UL)$, $British American Tobacco PLC(BTI)$, $Diageo PLC(DEO)$

Financial: $HSBC Holdings PLC(HSBC)$, $Prudential PLC(PUK)$, $Barclays PLC(BCS)$

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Are you bullish on UK stocks?

Do you know of any UK stocks listed in the US?