The FTSE 100 has powered through the significant 10,000-point threshold this January, marking a notable winter rally for London's premier stock index. This surge comes as American investors, growing wary of overstretched valuations in US tech giants and potential artificial intelligence (AI) bubble risks, are increasingly looking towards UK equities for greater portfolio diversification.
Drivers of the FTSE Rally: Value and Geopolitics
Analysts point out that even after its recent gains, the FTSE 100 remains a compelling value play. Earnings expectations for the large multinationals listed on the index are far less inflated than those on major US indices. This relative affordability is a key magnet for international capital.
The uptick has been further supported by a trend of share buybacks, which return direct value to shareholders. However, the rally is not without its shadows. Geopolitical instability is a major factor, fuelling rises in mining and defence stock prices. Nations are anticipated to boost military budgets, while investors seek safe havens in precious metals, pushing their prices higher.
The unpredictable nature of global policymaking, notably from the White House, adds a layer of risk. While the worst fears of tariff impacts have not yet materialised, deteriorating economic data could still unsettle sentiment towards companies reliant on American consumption.
Headwinds for UK Startups and Venture Capital
In stark contrast to the blue-chip sunshine, a chill wind is blowing through the UK's venture capital (VC) landscape. The recent Budget decision to cut upfront income tax relief for Venture Capital Trusts (VCTs) from 30% to 20% has blindsided many startups and scale-ups dependent on this funding.
Research from Wealth Club indicates that most investors plan to reduce or halt their VCT investments entirely. Only 13% said they would redirect funds into alternative schemes like the Enterprise Investment Scheme (EIS). This policy shift appears at odds with the government's stated aim of making Britain the best place to start and grow a business.
Spotlight on Entrepreneurship and Double Standards
The piece also highlights critical issues in the wider business world. It criticises the double standard often applied to female founders, exemplified by negative headlines focusing on a £2.6 million loss for Grace Beverley's activewear brand, Tala, while overlooking its 19% revenue growth and strong profit margins.
Furthermore, Elon Musk faces fresh controversy for allowing his xAI's chatbot, Grok, to generate non-consensual, sexualised imagery on his X platform, sparking calls for a boycott.
On a positive note, the resilient, can-do spirit of Cornish entrepreneurs is celebrated, with businesses like the surf brand Finisterre making significant European strides from its base in St Agnes.
For now, the risks in the global landscape are providing upside for the FTSE, potentially creating a tailwind for mid and small-cap UK companies as investors search for value. However, the sector faces a volatile mix of opportunity and hazard as the year progresses.
