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FTSE100 stays behind the times

It's a bit of a mystery as to why the FTSE250 has had such a great run and yet the FTSE100 has languished.

From a contrarian point of view, it is probably a good time to expect the FTSE100 to catch up. Yet there is probably more to these different performances than meets the eye.

Some of the performance of the FTSE250 must be laid at the introduction of the SETSmm system. When you look at the FTSE250 stock charts, time and again the introduction of SETSmm coincides roughly with the takeoff of the stock price.

Market Makers will tell you that there is no market depth without their old-style interaction. But in reality, the volatility of the share prices suggests improved liquidity. Improved liquidity means more efficient pricing. Could this be partially responsible for the performance of the FTSE250?

This theory looks good on paper, but isn’t the whole story. It’s easy to underestimate the backward shift away from equity culture in the all-important institutional investment landscape. The seismic change towards bonds has been a huge dead hand on the ‘blue chip’ equity market.

However, the UK is just a regional market on a global scale, while investment is an international game. Once the locals have balanced their books, the slack will be taken up by more aggressive international investors getting in on the cheap.

Clem Chambers is CEO of ADVFN – Europe’s leading stocks and shares website. For real-time share prices, go to www.advfn.com

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