Depending on which news article I just read, i FTSE 100 be it criminals or on the brink of disaster. In my opinion, the Jekyll and Hyde nature of London’s leading index brings up a few burning questions.
Questions like: what’s going on with the FTSE 100? Is Footsie in dire straits? Or are there many good stocks to buy right now (and what are they)? Let’s try to answer them.
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The tip of the iceberg
Outside, the FTSE 100 is going with the big guns. High records keep being broken. The index continues to surpass its American equivalent, i S&P 500. Everything looks nice and sweet. There are however a few monsters lurking under the bed.
FTSE 100 tech and tech-adjacent companies should have been the beneficiaries of artificial intelligence, but instead the opposite happened. Only last year. RELX decreased by 36%, Rightmove down 34%, too London Stock Exchange decreased by 31%. These are big drops and could be the tip of the iceberg if AI continues to improve.
In a completely unrelated way, the introduction of weight loss drugs has hammered the restaurant and bar crowd. Over the past two years while the FTSE 100 has been rising, Diageo decreased by 42%, White bread down 22%, too British Food Related down 28% – after investors expect people to eat and drink less.
All of this is one of the reasons why investors like me like to pick individual stocks. With an index fund that tracks the entire market, you’re with the losers and the dead. By selecting a small basket of individual companies, there is an opportunity to personalize a portfolio of the best stocks available. Yes, there is a chance to make a few bum picks and end up worse than average too.
A unique case
One stock that I believe is worth considering today HSBC (LSE: HSBA). The bank is currently the largest FTSE 100 company with a market capitalization of £200bn, yet its share price has risen 202% over the past five years.
Banks are traditionally considered a defensive sector. These are necessary businesses that cannot afford to underestimate new technologies. That often makes them a safe long-term investment. Some studies even expect banking to be one of the areas that benefit the most from the adoption of current AI models.
While the UK has a thriving financial sector, HSBC is unusual in its exposure to Hong Kong and China. The second most populous country in the world is still growing at a GDP of 5% per year, which offers more opportunities than many Western nations that struggle to grow above 1% per year.
The Chinese focus is a double-edged sword, however. Others are concerned about the accuracy of the country’s economic statistics and possible government manipulation. These are the risks of a bank that draws more than 50% of its profits there.
In short? It remains to be seen if the strange nature of the FTSE 100 and its other constituents continue this way, but there will always be many attractive opportunities in the index. I think HSBC could be one of those at the moment.
