Can Top UK100 Performers Keep Rising?

After substantial gains in July and August, the premier UK index has struggled to make headway as gains have concentrated in a smaller number of prominent firms last month.

FTSE 100 Firms Rising Over 10% in the Last Month

• Fresnillo (FRES) +28%
• Babcock (BAB) +19%
• Anglo American (AAL) +16%
• Endeavour Mining (EDV) +14%
• BAE Systems (BA) +11%

Investors Fleeing UK Stocks

The FTSE has struggled to make headway in September, and no wonder, after reports surfaced showing that at the fastest rate in over 20 years. The main reason seen for the rotation out of UK stocks, reversing gains seen earlier in the year, is concern over what will be in the Autumn Budget. Expectations have mounted that Chancellor Rachel Reeves will be forced to raise taxes in an effort to cover a £40 billion hole in the nation's finances. Previously, UK shares had attracted investors fleeing high valuations in the US, given their relatively low pricing. But now investors are selling British stock along with utilities and energy firms, a sign of a rotation back towards speculative stocks, which could continue to weigh on the FTSE 100 if the trend persists.

The situation puts the UK blue-chip index at a disadvantage, as it, enticed in part by lower interest rates from the Fed. The BOE continues to fight high inflation and isn't expected to cut rates through the rest of the year, which could contribute to slower economic growth in the British economy. Analysts also point out that the UK lacks prominence in the AI-driven tech sector that is helping prop up American indices and has seen renewed demand in recent days.

Main Themes Supporting the FTSE 100

Despite institutional investors selling UK shares, the this month, thanks to specific bright spots that have managed to drag the index higher. Examining the list of top performers over the last 30 days reveals an over-representation by mining companies, such as Fresnillo, which has ridden the price of gold to new highs. Anglo American has been in the news lately after agreeing to merge with Teck Resources in Canada and reaching a deal to partner with Codelco in Chile. BAE Systems is a leader amid increased European defence spending and reports that Germany is looking to find a replacement for its French partners in the FCAS advanced fighter programme with €100B.

The UK’s index appears to be consolidating, forming a potential pennant or triangle if prices remain within the tightening range between 9180 and 9340. Short-term resistance lies at the upper Bollinger Band of 9270, while support sits at the lower end at 9190, which coincides with the auto-trendline. As the bands appear to flatten out and the RSI heads towards the 50 neutral line, what happens in the short term may drive medium-term price action, leaving the door open to both directions. To the downside, the next support level under 9180 is at 9100, the low reached in early September.

Source: SpreadEx | UK 100, 4 hours