Picture supply: Getty Photographs
As a recent 12 months approaches, I wish to try to predict what the massive inventory market tales may be wanting forward. Listed below are my ideas on what the FTSE 250 share index may do over the subsequent 12 months.
A transfer above 22,000 factors?
2024 has to this point been a optimistic one for the FTSE 250. Up 4% within the 12 months so far, that is roughly the identical price of development it loved final 12 months.
If this price continues, the index will rise from 20,400 factors in the present day by means of the 21,000-point barrier. To be precise, it’ll finish the 12 months round 21,216 factors.
I feel the index could carry out extra strongly than the final couple of years, nevertheless. I’m tipping it to maneuver above 22,000 factors.
Base price increase
There are two the reason why. First, I feel there’s an opportunity the Financial institution of England (BoE) could slash interest rates extra sharply than the market is pricing in.
Yesterday (18 December), three of the central financial institution’s nine-member rate-setting committee voted to chop rates of interest. This was greater than anticipated, and whereas the bottom price remained at 4.5%, the stability might tip in the direction of extra aggressive motion if Britain’s economic system stays weak.
UK rates of interest are vital to the FTSE 250, as greater than 40% of the index’s earnings come from these shores.
The BoE is strolling a fragile tightrope given inflation uncertainty. However with rising unemployment and slowing recruitment cooling wage development, there could possibly be extra wiggle room for rate-setters to play with in 2025.
Goldman Sachs expects the bottom price to maneuver subsequent 12 months to three.25%. That’s far decrease than the 4% the broader market expects. If this occurs, London’s share costs might fly.
Discount-hunting to proceed
I additionally suppose the FTSE 250 will rise, as UK shares proceed to look low cost from a historic perspective.
Since December 2019, the index has fallen by round 1,270 factors, or 5.8%. To place that into perspective, the FTSE 100‘s risen 6.9% and the S&P 500‘s exploded 83.1% over the identical timeframe.
As a consequence, the index seems to be mighty low cost proper now. Its ahead price-to-earnings (P/E) ratio is effectively under the long-term common of 14 to fifteen instances, at 10.7 instances.
This might proceed to draw cut price hunters at house and overseas.
Right here’s what I’m doing
Whereas I’m quietly assured the FTSE 250 will rise in 2025, I’m not piling into one thing like an index tracker fund. It is because there are particular person shares I’d reasonably purchase to focus on a greater return subsequent 12 months.
Babcock Worldwide (LSE:BAB) is a defence inventory on my radar for subsequent 12 months. It’s risen 19% in worth to this point in 2024. And I’m optimistic it may well proceed hovering as Western arms spending accelerates.
Newest financials final month confirmed the superb progress Babcock’s making on this sad world local weather. Natural revenues rose 11% between April and September, pushed by power throughout its land and nuclear divisions. Underlying working revenue leapt 10%.
Regardless of 2024’s sturdy positive aspects, Babcock shares nonetheless look low cost, buying and selling on a low ahead P/E ratio of 11.4 instances. This leaves scope for additional value positive aspects subsequent 12 months, despite the fact that provide chain points stay a menace to income.
