Britain’s stock market is shrinking at its fastest pace in history, a Wall Street bank has suggested, as the FTSE 100 hits a fresh record high.
Goldman Sach said the combination of company buybacks and a lack of new stock being issued would drastically reduce the supply of shares available to be purchased by investors.
However, this reduction in the size of the market’s public equity would also mean shareholder returns in the UK are “poised to reach an all-time high,” analysts said.
Analysts predicted the trend should continue, with the latest Deloitte survey of chief financial officers showing that “the majority of UK CFOs think their companies are undervalued and they intend to continue to do buybacks”.
Share buybacks are the process of companies buying back their own shares from the stock market, reducing the supply and increasing the share price for investors.
Goldman’s analysis comes as the FTSE 100 is on track for its strongest week since last summer after a series of eye-catching takeover bids.
Britain’s flagship stock market jumped to 8,136.52 points today, notching up a record high for the fourth consecutive session in a hectic week for merger and acquisition activity.
The index has risen 2.9pc so far this week, which is its strongest performance since July.
Goldman Sachs analyst Guillaume Jaisson said: “The combination of dividends plus (net) buybacks implies a 5.5pc total yield in the UK.
“It compares with 4.5pc for Europe (excluding the UK) and 3.5pc in the US.
“The yield differential with the S&P 500 is the widest ever which makes UK equities an interesting gateway to Europe and to diversify from the US.”
He added: “In the UK the combination of buybacks and a lack of new issuance has meant that the net supply of public equity is shrinking at its fastest pace in history.”
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Source: telegraph.co.uk
