Britain's blue chip share index is set to rise 8 percent by the end of 2013, accelerating after a slow start to next year on expectations the global growth outlook will improve, a Reuters poll forecasts.
The FTSE 100 <.FTSE> is seen climbing a mere 150 points by the middle of 2013 before breaking out to 6,400 by the end of the year, according to the poll of 50 strategists taken in the past week.
The index closed at 5,945.85 on Wednesday.
"For investors looking to put their money somewhere, equities still present a viable option when compared to other asset classes, with the potential to offer capital appreciation as well as a decent yield," Angus Campbell, head of market analysis at Capital Spreads, said.
The FTSE has risen 6.4 percent this year, helped by gains in banking shares but underperforming European peers as heavyweight mining shares and international conglomerates struggled in the first half of the year. Miners <.FTNMX1770> lost 30 percent peak to trough this year, but have recovered 17 percent since June.
"Internationally exposed stocks should continue to do well and that means the FTSE 100 ... However, severe headwinds remain in terms of the euro zone debt crisis and so gains for stocks might be hard to come by particularly if those major threats to the global economy materialise," Campbell said.
Those threats include uncertainty over the so-called "fiscal cliff" - a series of tax rises and spending cuts totalling $600 billion (371 billion pounds) which could throw the U.S. economy into recession - and pressure in the bond markets on peripheral euro zone countries.
"Although concerns remain over euro zone sovereign debt issues, the U.S. "fiscal cliff" and the outlook for the Chinese economy, we believe these headwinds will be outweighed by positive factors such as strong corporate balance sheets, a reasonable valuation and an attractive dividend yield," said Paul Kavanagh, partner at Killik & Co.
However, other investors saw British stocks underperforming European peers if banks continue their recent rally. Goldman Sachs chief global equity strategist Peter Oppenheimer told reporters at a 2013 briefing that he expected Britain's FTSE 100 to rise by slightly less than the Euro STOXX 50 in 2013.
"We see a rebound in financials, and there's a greater concentration of financials in the Euro STOXX 50."
The poll revealed a broad range of predictions, from 5,500 to 6,560 for mid-2013 and 5,700 to 7,000 at the end of the year, with all but two of the 50 strategists polled seeing the FTSE hitting at least 6,000 by the year end.
This reflects a consensus that while concerns over the "fiscal cliff" and Europe, which will see elections in Germany and Italy in the first half of the year, may weigh at the beginning of 2013, the UK market should do well in the latter half of the year.
"If we can gain some economic traction, the second half of the year could see us finish on a sounder footing, hopefully giving us some good gains to finish the year," Dan Reed, broker at HB Markets, said.
(Additional reporting London and Paris Markets; Additional polling by Namrata Anchan and Ashrith Doddi; Editing by Susan Fenton)