Is The UK Stock Market Over Valued?
While the UK stock market appears to have overcome a lot of the worries and concerns which arose towards the end of February, is it time to go back in? Initial worries about the state of far eastern economies and the US housing market had caused the FTSE100 to fall from 6450 to 6000, however the market is again approaching 6400, but is it all over?
There are a number of factors which seem to be adding to the market highs which include :-
· Relief. There is definitely a relief that the far eastern and US economic concerns have not yet materialised, but many observers are still expressing grave concerns.
· Takeover speculation. It seems that everyday a major UK company is mentioned as a possible takeover target, whether this be Boots, Sainsbury, Barclays Bank, etc. While few of these takeovers have actually been confirmed, the speculation has led to increased share prices.
· The end of tax year effect. As we passed the end of the tax year last week, there was the annual rush to use up allowances and transfer funds into tax efficient investment vehicles. This caused a substantial amount of new funds to be invested, causing a short term squeeze in the supply and demand figures - which drive share prices up or down.
There is no doubt that all of the recent bid speculation has stretched a number of share price valuations, because not only does it have an effect on the potential target company, but can also cause a revaluation of the whole sector, e.g. if someone is prepared to pay X for Sainsbury, then Morrisons must be worth Y.
While there is no doubt that there is value out there, it is becoming more and more difficult to find, and areas such as personal debt, the housing market and ever increasing taxes have not yet been fully recognised. Caution is still very much the short to medium term watch word.
You must be logged in to post a comment.