Looking on a long-term basis the FTSE 100 has not moved much. It is not far away from the level it was in 1997. Do not forget the FTSE is not a like for like comparison. It continually removes the poor performers and replaces them with better performing constituents. So even in this survival of the fittest scenario, the fittest have merely stood their ground. Even worse, many of the recent additions are not really UK companies at all and the only reason that there has been any strength at all in the FTSE 100 over the past year has been because of companies such as Antofagasta (Chile), Kazakhmys (Kazakhstan), BHP (Australia) and BP, Shell, and Rio Tinto (Global but definitely not UK). Even companies such as Vodafone and HSBC (one of the ?better? banking stocks this year) are increasingly global rather than domestic.

Does that mean the FTSE 100 is more of a global index?

70% of FTSE 100 stock income is from foreign earnings but even here a large proportion is in US Dollars which until recently has only been marginally stronger than Sterling.

The preponderance of mining, tobacco and oil companies in the index is helping to offset the falls in Banking and Retailers. However it must be pointed out that if the remainder of the index had matched the falls in these two sectors we would be another 2000 points lower.

If the current weakness in the Commodities Market continues and the Financial Sector continues to have problems that would suggest only one direction.

Of course, as mentioned above, the FTSE does replace its constituents. That would suggest any drops will be supported by the stronger companies on their way up. And like the adverts say, the markets can go up as well as down.

In the UK with just about every indicator you care to mention in the red or moving into the red the equity markets look to be defying gravity. This is, as with everything financial these days, an illusion for several reasons. In world terms, the value of UK equities has fallen dramatically as the pound has dropped (for a European or Far Eastern investor in British stocks their valuations are actually another 20% lower in local currency terms). Secondly, much of the income from top line FTSE companies comes from abroad where in some cases the current economic cycle is still thriving and in Sterling terms that means their revenues may have actually increased even though economic conditions worsened.

When we focus on UK centric FTSE 100 stock the picture is much less positive. The retail and banking sectors are performing pretty poorly with many valuations languishing at 50%+ discounts compared to this time last year. The FTSE 250 is off almost 30% from last years highs whilst the senior index was ?only? about 20% lower prior to the Lehman's catastrophe. Given the much more home market based orientation of the FTSE 250 index this is not surprising. Having said that, if you take into account the appalling performance of the UK centric stock in the FTSE 100, it can be argued that either the FTSE 250 is out performing the major index or that many top line stocks have been well and truly oversold.

Which is which? Should we be ? Well that is, of course, where you pay your money and take your chance.

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