FTSE 100 could 'touch 9,000' this year with soft Brexit approach

The FTSE 100 surged into new record territory in early trading on Tuesday, with one analyst predicting a gain of more than 20% this year if the Government pursues a soft Brexit.

The FTSE ended 2016 as Europe's leading stock market in terms of gains, after a rise of 14% over the 12 months .

London's premier share index achieved the performance - its best since 2013 - despite initial turmoil over the shock outcome of the EU referendum and challenges posed by weak commodity prices in the mining-heavy market.

It has benefited from the collapse in the value of sterling since the EU vote and Donald Trump's pledge to invest in infrastructure since his US election win, which has bolstered values worldwide and helped US stocks hit new heights.

A recovery in the oil price - which collapsed at the start of 2016 - has also helped. It turned higher again as new year markets opened, with a barrel of Brent crude climbing above $58 for the first time since July 2015.

The FTSE 100 broke through its previous record high, set in April 2015, last Wednesday, before setting new bars over the next two trading days ahead of opening at 7,142 on Tuesday.

It hit an intra-day high of 7,202 in early trading - up almost 1% - with a broad range of shares seeing gains but almost half those gains were lost by afternoon trade.

Many of the FTSE 100's constituents benefit from sterling's weakness because they are multi-national firms which can convert overseas earnings into pounds.

The pound ended 2016 18% lower against the dollar and 11% weaker versus the euro.

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Sterling continued its slide against the US currency on Tuesday, slipping by a cent to $1.22, its lowest level in two months - though it was higher versus the euro.

The FTSE 250, containing more domestic-focused firms, remains some way off its record high set in October over concerns manufacturers are feeling the pinch from higher import costs and not benefiting fully from a weaker pound in gaining export orders.

Retailers are also braced for a tougher year amid fears the higher cost of importing goods will force up many prices and squeeze family budgets.

Many companies, especially big banks, fear extra costs and loss of business if Brexit means exiting the EU's single market.

Chief (Taiwan OTC: 3345.TWO - news) market analyst at Think Markets, Naeem Aslam, said: "If Theresa May adopts a more flexible approach and we have soft Brexit, then we could expect the FTSE 100 to perform very well.

"The UK's housing sector could particularly perform well under that scenario and perhaps you may want to look at some prominent estate agents' stocks which have been brutally punished in 2016.

"Therefore, we would expect the FTSE 100 to close the year with more than 20% gain and touch the 9000 mark."

On the flip side, if there is hard Brexit, investors would have to brace themselves for turmoil.

"We could see the FTSE 100 dropping all the way to 4300 which is nearly 65% drop from today's price," Mr Aslam said.

A soft Brexit involves the UK maintaining access to the EU's single market in return for the loss of control over some issues, like immigration.

A hard Brexit entails cutting all ties with Brussels and gaining full control over our borders.