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This year's third quarter was the best performance experienced by the Footsie since records began in 1984 but HSBC has today been telling clients: you ain't seen nothing yet.
The bank's equity strategist Garry Evans is a raging bull: “We expect that, for the next couple of quarters, growth will continue to surprise on the upside but rates will remain ultra-low. That is an almost perfect environment for equities”.
He is forecasting another 20% to 25% rise in the index by the end of next year, taking it up to 6280 — still 670 points shy of its record high of 6950.6 achieved at the height of the dot-com boom in December 1999.
Evans says global growth has bottomed and the world equity index has risen 53% since early March. “It is tempting to think that the good news has been fully priced in and that equity markets will struggle from now on. We disagree!”
He expects the growth to continue over the next couple of quarters and says economists and analysts are likely to raise their forecasts further. The growth in gross domestic product and earnings they are already forecasting for next year is “extremely modest” by the standards of previous recoveries. “At the same time, monetary policy almost everywhere will remain ultra-easy,” he adds.
The two UK-based companies at the top of HSBC's European conviction buy list include Legal & General, ½p firmer at 86p, expected to benefit from improving solvency and operating cash generation, and Lloyds Banking Group, 1.2p dearer at 96.2p, which still looks cheap on a price-earnings ratio of six.
Evans's forecast is in stark contrast to yesterday's warning from New York University professor, Nouriel Roubini — the man who predicted the banking collapse — who said that shares will drop in the months ahead as the gradual pace of the economic recovery fails to live up to investors expectations.
Shares surged back above the 5000 mark in late trading yesterday, supported by evidence of a revival in the services sector. Investors took the view there was still value to be squeezed out this morning and continued to chase prices higher. The FTSE 100 index sported a rise of 16.36 at 5040.69.
But investors gave a luke-warm response to the half-year trading update from Tesco which was left nursing a loss of 6.4p at 385p.
The miners continued to display a quick turn of pace as they were again chased higher on dearer raw material prices. Kazakhmys rose 30p to 1034½p, Xstrata 25p at 900p, and Rio Tinto 69p at 2633p.
European Goldfields, the sixth-biggest company quoted on AIM, jumped 14½p to a year's high of 296p after receiving approval to bring two large gold mines Skouries and Olympias in North-East Greece into production. The two mines will produce more than 420,000 ounces of gold per year from 2012, more than doubling the whole of gold production from the EU.
Takeover favourite Chloride dipped 1.4p to 173.5p after KBC Peel Hunt cut its rating on the shares from hold to sell. The shares touched a higher for the year of 183p last month.
Investors on Wall Street recovered from a nervous start after confidence was boosted by news of the first expansion in the services sector for a year. The news from the Institute for Supply Management's September survey was better than expected, coming in at 50.9 against forecasts of around 50. The Dow ended 112.08 points higher at 9599.75.
Financials led the charge after Goldman Sachs urged clients to increase their holdings in shares of America's biggest banks, which it said were in a position to outperform the smaller regional banks as the acquisitions they made at the height of the banking crisis began to pay dividends. That lifted JPMorgan 3.3% to $43.22 and Wells Fargo 5.6% to $27.76.
Tokyo shares posted a modest gain but had earlier dipped to their lowest in 11 weeks as a stronger yen hurt some exporters such as Canon, though bank shares rose after Goldman's upgrade of the US sector. The Nikkei 225 closed 17.30 points higher at 9691.80 after falling as far as 9628.67, its lowest since 22 July.
Hong Kong shares posted some useful gains, tracking events on Wall Street, while Chinese gold miners rallied after gold prices inched up.
Hong Kong airline Cathay Pacific rose 3.63% after posting its best weekly passenger load factor for 2009. The Hang Seng index was up 185.32 points at 20,614.39.
