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London's FTSE 100 is looking ripe for further gains… Here's how you can invest in it through your South African stockbroker

by , 02 October 2014

When it comes to building a portfolio of shares, it makes good diversification sense to put some of your money into markets other than South Africa.

Offshore investments can be tricky, but there is a way you can gain exposure to these markets very easily.

The London Stock Exchange's main index, the FTSE 100 is showing signs of further gains.

Here's how you can get in the action…

Why the FTSE 100 could be preparing for a move upwards

Despite being five years down the road from the financial crisis, several central banks around the world are still pumping money into their economies.

When central banks opt to increase the flow of money, there is one thing that can occur as a result. And that’s inflation in economies where inflation is low.

More money means that prices have to go up at some point, Bengt Saelensminde in The Right Side explains.

If investors start to view inflation as a worry, then this fuels a move into financial markets. Shares are good at providing some protection against the effects of inflation.

So why is that the case?

Let’s go through an example…

If a company is currently earning R100 million on R1 billion in turnover, if inflation kicks in, it could earn R200 million on R2 billion in turnover.

Inflation helps companies to boost earnings, as long as the company maintains its margins. This reduces the PE (price earnings) ratio of companies.

And this is why shares do well with inflation kicks in. It helps companies boost their earnings.

How to play the FTSE 100

If you believe that inflation is going to hit the UK after languishing at low levels recently, then to try to benefit from a move up in stocks, you could invest in the FTSE 100.

You don’t have to try and find an overseas broker to deal with your offshore investment, you can buy into an exchange traded fund (ETF) listed on the JSE which tracks the FTSE 100.

If you’re interested in doing this, just speak to your stockbroker.

So there you have it, how you can invest in the FTSE 100 through your South African stockbroker.

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London's FTSE 100 is looking ripe for further gains… Here's how you can invest in it through your South African stockbroker
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