Difficult year for flagship index

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Published: Wednesday 31st December 2014 by The News Editor

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The FTSE 100 Index has ended the year lower than where it started in the first annual fall since 2011 as fears for the world economy and plunging oil prices held back stocks despite the UK’s strong growth.

London’s leading share index has dropped 183 points or 2.7% over the course of the year, wiping £46 billion off the value of the top 100 UK-listed companies.

The fall defies hopes that the FTSE, which gained 14% during 2013 to finish at 6749.1 points, would go on to surpass its record closing high of 6930.2 – achieved during the dotcom boom in 1999 – and even climb as far as 8000.

But while the index did pass 6900 to near all-time records, it was held back by political events such as the Scottish referendum as well as global crises including those in Ukraine and Iraq.

Warnings about the world economy also held back sentiment as the eurozone faltered badly despite interest rates being slashed to 0.05% while Chinese growth slowed and Japan slipped into recession.

Fears about global demand pushed the price of a barrel of Brent crude sharply below the 100 US dollar level. It tumbled to a five-year low of less than 56 US dollars.

It saw FTSE heavyweight BP tumble by 16% over the course of the year though rival Royal Dutch Shell was firmer, slipping just 2%.

Worse hit were major exploration firms Tullow Oil, which lost 52% of its value and was the FTSE 100’s worst performer in 2014, and BG – the company which started life as a spin-off from British Gas – which fell by 33%.

Also among the big fallers for the year were Britain’s major supermarkets, which have been squeezed by discounters Aldi and Lidl and embarked on a fierce price war to try to stem sliding sales.

Market leader Tesco has plunged by 43% in a year which has seen the departure of boss Philip Clarke amid its worst quarterly sales performance, as well as a series of profit warnings and a major accounting scandal.

Rival Sainsbury’s was 32% lower while Morrisons lost 30% of its value.

Despite the global headwinds that brought the FTSE 100 lower, Wall Street shares continued to go from strength to strength.

Analysts said that was because London’s top-flight is dominated by sectors that are under pressure, including oil as well as commodities – which have been volatile due to fluctuating demand from emerging economies – and banks.

There are some hopes that the relative underperformance of UK shares over the last couple of years will leave them attractively cheap compared to Wall Street, attracting investors over the year to come.

The big commodity and mining firms dragging on the index during 2014 have included the likes of BHP Billiton, down 26%, Rio Tinto down 12% and Anglo American off 9%.

Britain’s banks have been among those hit by regulatory fines including £2.6 billion in total penalties charged last month over the foreign exchange rate rigging scandal.

They have also been under pressure to shore up the level of capital on their balance sheets to make them more resilient in the event of another financial crisis.

State-backed Royal Bank of Scotland, 80% owned by the taxpayer, has made some progress towards a level where the Treasury can sell off its stake without making a loss on its initial investment, climbing 17%, though at less than 400p remains well off the break-even price of 500p.

However Lloyds Banking Group, a quarter owned by the Government, has dropped by 4%. Barclays has lost 10% of its value while HSBC is 8% down.

The best performer in the FTSE 100 has been newly merged retailer Dixons Carphone, with the combined value of the former Dixons and Carphone Warehouse group up 71% on a year ago.

This month it said its UK stores had enjoyed a “barnstorming” performance.

Second on the annual risers’ table was drugs firm Shire, up 59% during a year when an aborted £32 billion takeover by US rival AbbVie resulted in a £1 billion break fee for the company being triggered.

Published: Wednesday 31st December 2014 by The News Editor

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