The City of London’s benchmark was trading at 8,040 shortly after the open on Thursday. It briefly popped above 8,000 on Wednesday, only to close a few points shy of the landmark.

The Footsie, as it is known, has gained 7.6% year to date and has bounced about 60% since plunging below 5,000, an eight-year low, at the peak of the COVID panic in March 2020.

The rebound has been driven in part by some renewed optimism among global investors as they bet that falling inflation in the U.K. will soon encourage the Bank of England to ease the pace of interest rate rises.

Declining energy costs in Europe and the opening up of China’s economy as COVID restrictions are lifted has also helped sentiment, and consequently since the start of 2023, the Europe-wide Stoxx 600
SXXP,
+0.39%
is up 9.3%. Wall Street’s S&P 500
SPX,
+0.28%
has gained 8% for the year to date.

Popular U.S.-listed exchange-traded funds investing in Europe including the Vanguard FTSE Europe ETF
VGK,
-0.10%
and the JPMorgan BetaBuilders Europe ETF
BBEU,
-0.04%
are each up about 10% this year.

“The recent outperformance of Europe versus the U.S. is arguably the former’s best relative run in over 20 years,” said Graham Secker, equity strategist at Morgan Stanley.

“We see four main catalysts behind Europe’s recent rally: i) economic news flow is holding up better in Europe than the U.S.; ii) lower EU gas prices; iii) Europe is more geared to China; iv) better earnings revisions in Europe than the US,” Secker recently wrote in a note to clients.

However, the Footsie has received additional support for a number of reasons. First it has few richly valued technology companies and is replete with highly cash generative relatively lowly valued sectors such as basic materials, energy and financials.

That was a problem for the Footsie for many years when the zero interest rate environment encouraged investors to seek so-called ‘growth’ stocks. Now, with interest rates much higher investors are keen to buy such ‘value’.

Even after its good run, the Footsie sports a forward price/earnings ratio of about 10.8, according to Factset, compared to 18.4 for the S&P 500, for example. Furthermore, the Footsie’s dividend yield of about 3.7% is double that of the S&P 500.

Another issue helping the London benchmark is that many of those lowly-valued sectors are expected to face macro-economic tailwinds and helpful demograhic trends.

Miners and energy groups such as Antofagasta
ANTO,
+0.29%,
Anglo American
AAL,
+0.84%,
Rio Tinto
RIO,
+1.36%,
BP
BP,
+0.07%
and Shell
SHEL,
+0.39%
are benefitting from hopes of greater demand from China. AstraZeneca
AZN,
-0.71%
and GlaxoSmithKline
GSK,
+0.96%
are riding an emphasis on healthcare amid pandemic fretting and as societies age.

“Investors appear to have fallen back in love with U.K. assets, after a difficult period when FTSE 100 was the wallflower among global indices. Confidence has rebounded as investors eye up China’s reopening, helping commodity stocks,” said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown.

Financials, the biggest Footsie sector with a near 19% weighting, and which includes HSBC
HSBA,
+0.31%,
Europe’s largest bank by assets, are enjoying a revival as interest rates have moved higher.

Ironically, worries about the poor relative health of the U.K. economy has also lifted the Footsie. The British pound
GBPUSD,
+0.28%
sits only about 20% above its record low partly on the back of that. But because around 80% of Footsie revenues come from abroad, the weaker pound is another support for the index’s earnings.

“U.K. markets…continued their sprightly start to the year…There has also been some suggestion that certain U.S. investors are currently looking towards Europe for more immediate investment opportunities, with the FTSE100 having been one of last year’s relative success stories ,” said Richard Hunter, head of markets at Interactive Investor.