Will the FTSE 100 Hit a 10-Year High in 2013?


LONDON -- More than five years after the onset of the credit crunch, the FTSE 100 is fighting fit. So far in 2013, the index is up 5.8%. In the last six months alone, it has risen 13.5%.

This huge rise means that the index is now within reach of a 10-year high. According to my data, the FTSE 100 is 7.8% off its highest point of the last 10 years: 6732.4, recorded on June 15, 2007. I believe there are three big reasons why further rises could be in store -- increases that could take the index above its highest point of the last decade.

Bulls still the minority
Investor confidence in the last decade has been battered by the credit crunch, financial crisis, and the eurozone panic. I believe sentiment toward shares is still very negative. However, the sustained rises that the FTSE 100 has been delivering could help turn this sentiment around. Rises give many investors confidence; this could lead to more buying and price increases. The result would be a ratcheting upward of indexes like the FTSE 100.

Shares are one of the best bets around
After year of inflation-busting rises, house prices have recently been moribund. The rates that people can earn on cash deposits are close to nil. Meanwhile, shares have been performing well. Despite recent rises, many blue-chip companies are still paying dividends of around 5% to 6%. I cannot think of any assets that are offering returns like shares are today.

The FTSE 100's most important shares are cheap
The FTSE 100 is a market-weighted index. This means that not all of its constituents have the same pull on its value; companies at the top end with bigger market caps have more influence than the smaller companies. Titan stocks like Royal Dutch Shell, Vodafone, HSBC, BP, and GlaxoSmithKline have a huge impact on the index. In fact, these five companies alone make up 32% of the entire value of the FTSE 100 index.

All five are cheap right now and have the potential to move significantly higher in 2013, pushing the FTSE 100 toward record highs.

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The article Will the FTSE 100 Hit a 10-Year High in 2013? originally appeared on Fool.com.

David owns shares in Vodafone but none of the other companies mentioned. The Motley Fool has recommended shares in Vodafone. The Motley Fool recommends GlaxoSmithKline. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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