Understanding the FTSE 100: The heartbeat of the UK's financial market

  • Canarian Weekly
  • 11-09-2023
  • Business
  • Photo Credit: Pixabay
Understanding the FTSE 100: The heartbeat of the UK's financial market

The FTSE 100, or "Footsie", showcases the UK's top 100 companies. The FTSE 100, short for Financial Times Stock Exchange 100 Index, is used to indicate the financial health of the UK. Here you will find everything you need to know about the FTSE 100 and how it relates to the UK’s financial market.

History and Evolution.
The FTSE 100 began in 1984 at 1,000 points. It's had its highs and lows, reflecting the UK's financial state. From the dot-com bubble to the financial crisis of 2008, the Footsie has stood resilient, adapting and evolving with the changing times.

Components and Criteria.
The Footsie isn't just a random collection of companies, there's a method to the selection. Companies get picked for the FTSE 100 based on their market value, which comes from their stock prices. The method ensures that the index represents the most influential players in the UK's economic landscape.

The Role of the FTSE 100 in the Global Market.
The Footsie doesn't operate in isolation in today's interconnected world, it's a barometer for global financial trends. When major global events occur, from elections in the US to trade deals in Asia, the ripple effects can often be seen in the performance of the FTSE. Conversely, shifts in the FTSE can influence markets worldwide, underscoring its significance worldwide.

Calculating the FTSE 100.
Market capitalisation is used to weigh all stocks listed on the London Stock Exchange. The top 100 companies with the highest market caps get into the index. Some top companies in the FTSE 100 include Unilever, Barclays, Royal Dutch Shell and GlaxoSmithKline. Stocks that have a high market cap are also more dominant in the FTSE. This also means they affect the index price movements more. Market capitalisation is reviewed quarterly for each company and then adjusted.

The Impact of Economic and Political Events.
The FTSE 100 reacts to big world events. For example, the 2016 Brexit vote shook things up, yet the index has showcased remarkable resilience. It adapts, recalibrates, and continues its journey, serving as a beacon for investors and economists alike.

Benefits of Investing.
Diversification: The Footsie comprises various companies from various sectors, from finance to technology. Investing in these companies means spreading your risk.

2 Dividend Yields: Many FTSE 100 companies have a track record of regular dividends. For investors seeking regular income, this can be an attractive feature.

3 Global Exposure: Since many of these companies operate internationally, investing in them provides exposure to global markets. Putting your money here comes with both advantages and drawbacks.

4 Liquidity: While there's potential for growth and earning dividends, it's not without its hazards. Like all investments, do your research. Maybe even get advice from economic experts.

Risks of Investing.
Market Volatility: Shares in these companies are subject to market volatility like all stock investments. Economic downturns, political events, or global crises can lead to significant fluctuations in stock prices.

2 Currency Risk: Since many of these companies earn revenues in foreign currencies, fluctuations in exchange rates can impact their earnings and consequently their stock prices.

3 Overexposure: While the Footsie offers diversification, it's essential to ensure that one's portfolio isn't too heavily weighted towards it. Diversifying across different indices and asset classes is important.

4 Economic and Political Sensitivity: Being the top companies in the UK, FTSE 100 listings are often more sensitive to economic and political events in the country. Decisions made in Westminster or global events like Brexit can have a pronounced effect on the index.

As with all financial ventures, it's important to research thoroughly, understand market movements, and consider seeking advice from finance professionals to ensure informed decisions.

The FTSE 100 isn't just a set of figures, but it's the heartbeat of the UK's financial scene, capturing the economic journey of the country. So, to get a feel of the financial health of the UK, you may not have to look any further than the Footsie.