Economics

The FTSE 100's evolution since its 1999 peak

20/03/2015

It has been nearly a decade since Hikma Pharmaceutical joined the main market of the London Stock Exchange (LSE), but its entry into the FTSE 100 on Monday reflects the shifting fortunes of businesses in the post credit-crisis era and the changing face of the UK's benchmark index.

Jordan-based Hikma joined the LSE in November 2005 with a market value of £483 million, since which time its value has increased ten fold, to £4.5 billion*.

Hikma's ascension to the ranks of the FTSE 100 means the number of drug companies represented on London's top share index has doubled since 1999**, when the index hit its pre-credit crisis high.

Changing fortunes

The rise of the pharmaceuticals lies in stark contrast to the fortunes of the banks.

Many banks collapsed or were consumed in the wake of the 2007-08 financial crisis, most memorably Northern Rock and Bradford & Bingley. But the number of banks on the FTSE 100 has been falling since the index peaked in 1999: to just five today from eleven 15 years ago.

The technology, media and telecoms (TMT) sector too, which dominated at the index's 1999 peak, has seriously shrunk. From the 22 FTSE 100 companies that existed in 1999, there are just nine in the top flight today.

Sage is one of the survivors. The software specialist's market value was under £30 million at its initial public offering in 1989, but had grown to £1.8 billion at the point it gained a FTSE 100 pass in 1999. It is currently valued at £5.2 billion*.

The other notable TMT survivor from that time is Cambridge-based chip designer ARM.

 

Building for the future

The floundering fortunes of techs and the banks present an opportunity for other industries such as the housebuilders, the resurgence of which reflects the resilience of the UK housing market, to enter the top flight.

Top of the reserve list for entry into the blue chip index is Berkeley. If Berkley makes it onto the top table it would mark another major step forward for the UK house builders. It would take the sector’s FTSE 100 contingent up to four from one in as many months, after Barratt Developments and Taylor Wimpey joined the index in December.

Will the changing face of the FTSE 100 help the index maintain its recent all-time highs? That remains to be seen, but what is for certain is that the make-up of the index looks set to keep evolving.

*As at close on 18/03/2015. **To create like-for-like comparison, assumes the merger of GlaxoWellcome and SmithKline Beecham to form GlaxoSmithKline had already happened in 1999, whereas deal completed in 2000. Source: Schroders Investment Management, Thomson Reuters Datastream, Regulatory News Service

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