FTSE set for 8% leap next year as record rally goes on

Market strategists are predicting the Footsie will end 2010 almost 8% higher as the global economy improves.

Analysts said today that London shares would improve next year, despite a bumpy ride with uncertainty over the General Election and economic growth, thanks to its international focus.

Barclays Wealth's head of investment strategy Kevin Gardiner, who predicts the index will hit 5,700 next year, said: "The UK market is the Chelsea of stock markets: most of its glamorous playmakers are overseas earners. This is one of the factors that will likely ensure a V-shaped profits recovery into 2010 even as the local UK economy remains one of the most fragile in the G20".

Although the FTSE-100 Index was down fractionally, by 2.79 points at 5369.59, today, the market has seen its biggest rally in 12 years.

Leading shares have jumped 55% since March when fears for the health of Britain's banks sent the index crashing to a low of 3,461 points.

Investors have piled back into battered stocks, pushing the benchmark up 21% for the year. It was today just shy of its high for the year of 5,396.

The index is tipped to end 2010 at 5,800 points, according to a poll by Reuters of 20 market watchers.

But there is a large split between analysts: with the biggest bull, UBS, predicting the market will rise by 16% next year, while the biggest bear, Morgan Stanley, forecasts it will fall by 7%.

The latter believes the blue chip index will retreat to 5000 points, but has a "bear scenario" where it plunges to just 3600 points — back to the lows reached in March this year. The broking heavyweight gives a 30% chance of the index falling this far.

Its analysts said there are two potential causes for such a decline: "Either the economic recovery runs out of steam of its own accord and growth takes a renewed lurch down, or inflation fears force central banks to hike rates more agressively than they would like and short circuit the recovery."

It is a far cry from UBS whose analyst Nick Nelson argues the FTSE 100 will finish next year at 6250. UBS believes investors will continue their shares buying spree as interest rates remain low and the economy picks up.

Some analysts argue that the Footsie will be protected from any UK economic woes by its plethora of foreign-focused stocks. Many warn that investors will be in for a bumpy ride, with the General Election in the UK and mid-terms in the US.