UK’s FTSE 100 breaks out despite election uncertainty

The opinion polls are currently pointing to an uncertain outcome in the United Kingdom’s general election next month, with a strong likelihood of no outright winner, and possibly the formation of a minority government.

Such political uncertainty is usually not good for equities, but this does not seem to be the case.

The UK’s FTSE 100 index is now trading higher than it ever has, in line with global equity markets, which are gaining upside momentum with more and more indexes breaking out to all-time highs. Easy monetary policy, applied by central banks globally, has helped to inflate asset prices, with developed markets the major beneficiaries in the past couple of years.

Equities are trading above all-time highs is what technical analysts call “uncharted territory”. Here indexes are subject to minimal resistance, because all equity investors are in profit and there is no pressure to exit at break-even levels.

Demand for securities tends to outstrip supply.

Before recent trading sessions, the FTSE 100 index had not traded above 6,950 levels since 2000.

The coming weeks are now important. If the index can remain clear of this 15-year resistance level, on a monthly closing basis, we are likely to see a multiyear uptrend.

Of course, the general election on May 7 – and the probability of a period of uncertainty before the formation of a government – remains a major hurdle for investors to cross. But such a significant breakout by a major widely followed index, would add to positive sentiment across global equities.

Aksel Kibar is a technical strategist at the Abu Dhabi-based asset manager Invest AD

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