FTSE 100 Ends 2011 Down After Turbulent Year Of Political Inaction

FTSE Ends 2011 Down After Chaotic Year For Global Markets

A tumultuous year for stock markets ended today with the FTSE 100 Index down nearly 6% in 2011, with an estimated £85 billion wiped off the value of Britain's companies. However, investors may be thankful the decline was not worse.

During a panic sell-off in August, when politicians were staring into the abyss due to the European debt crisis, the top flight index was 19% lower and below the 5000 threshold. It closed today at 5572.3, down 327.7 points, or 5.6% lower.

City experts have forecast more fluctuations in 2012 and with the future of the eurozone still uncertain few have made firm predictions for next year.

The near 6% fall for the FTSE 100 Index is in stark contrast to the 9% gain the previous year, while the FTSE 250 Index fell 13% after an improvement of 24% a year ago, reflecting gathering gloom over the world economy.

But the performance of the London market is significantly better than many in crisis-hit Europe, with the Dax in Germany about 15% lower and the Cac-40 in France around 18% lower.

Asian markets have also suffered after Japan's Nikkei closed at its lowest year-end level since 1982, having lost a fifth of its value following the devastating tsunami and nuclear crisis. China's Shanghai Composite Index dropped by a similar amount.

In contrast, the Dow Jones Industrial Average is set to finish up about 6% amid encouraging signs over the resilience of the US economy.

Fears about the world economy came to a head in August after the US suffered a credit rating downgrade and there were grim predictions that Spain and Italy would collapse under their respective debt mountains.

It resulted in successive falls of one hundred points in a day for the FTSE 100 Index, including August's record run of four triple-digit losses in a row.

The decline in the FTSE 100 Index is largely down to the poor performance of heavily weighted mining companies, which have been hit by declining commodity prices as global economic prospects darken.

Banks have also had a torrid year after being hit by fears over their exposure to European debt and the prospect of increased Government regulations, such as the forced split of their retail and investment arms.

Taxpayer-backed Lloyds and Royal Bank of Scotland were down 61% and 49% respectively.

In the FTSE 250 Index there were huge falls for Argos and Homebase owner Home Retail, which dropped 56%, while PC World and Currys owner Dixons Retail was off 57%.

Stock market historian David Schwartz has declined to make a FTSE 100 forecast for the first time in 15 years following a year of unprecedented volatility.

He said: "Investors are very frightened and sudden news is spooking them and they are reacting instantaneously and violently and we are set for more of the same.

"The market is no longer moving on economic fundamentals - it is moving on political action or inaction, making it very difficult to predict."

While the failure of politicians to deal decisively with the debt crisis continues to hang over the market, it could receive an uplift because interest rates are forecast to stay at their record lows for the whole of 2012, making stocks that pay decent dividends more attractive to investors.

And with Government bonds at record lows of under 2%, the stock market may also be boosted as investors look for a better return on their money. But pension funds, which traditionally invest heavily in bonds, have warned that falling yields are likely to widen their deficits.

Investors will also be hoping that governments and central banks decide to pump more money into the world economy. The Bank of England recently increased its quantitative easing programme to £275 billion and many expect it to take further action in coming months.

Justin Urquhart-Stewart, a director of Seven Investment Management, predicted that the FTSE 100 Index is likely to move up towards 6000 by the end of the year.

He said: "The market is rather undervalued and assuming we don't have a eurozone disaster, the US recovery gathers pace and Chinese growth does not stop altogether, it could be a more positive year.

"It may turn out that despite all the bad news, the market might climb a wall of worries and make progress."

The top five performing FTSE 100 companies over the year:

  • Shire up 44%
  • Next up 37%
  • Arm up 37%
  • Tate & Lyle up 36%
  • Aggreko up 34%

The bottom five performing companies currently in the FTSE 100 were:

  • Essar Energy down 71%
  • Lloyds Banking Group down 61%
  • Vedanta Resources down 60%
  • Man Group down 58%
  • Royal Bank of Scotland down 49%
Close

What's Hot