Investing.com -- The FTSE 100 index, despite recent underperformance relative to its global peers, is expected to stage a significant comeback, according to UBS. Analysts are projecting a bullish trajectory for the index, targeting a level of 9,000 by the close of 2024.
Several key factors underpin UBS's optimistic outlook for the FTSE 100. The index currently trades at a discount compared to its historical price-to-earnings ratio, presenting an attractive entry point for value-seeking investors. Moreover, UBS anticipates a rate-cutting cycle from the Bank of England, which would prove beneficial for corporate profitability.
The economic backdrop is also turning positive, with UBS forecasting an acceleration in UK economic growth to reach 1.5% next year. This positive economic outlook, coupled with a bullish forecast for oil and industrial metal prices, is expected to contribute to a recovery in FTSE 100 earnings. After a decline in 2023, UBS predicts a turnaround for corporate profits, with a growth trajectory of 4% in 2024 and 7% in 2025. This 7% growth rate aligns with the S&P 500 and surpasses expectations for both the Eurozone and Japan.
Beyond earnings growth, the FTSE 100 offers a compelling 4.0% dividend yield, the highest among major developed markets according to UBS.
While acknowledging the historical underperformance of the UK equity market, UBS emphasizes that past performance is not a guarantee of future returns. UBS contends that the current environment presents a unique combination of factors favoring the FTSE 100, including attractive valuations, a potential shift in monetary policy, and a recovering economy.