Wednesday, 31 December 2008

FTSE 100 on course for worst ever year

FTSE 100 on course for worst ever year
The FTSE 100 is almost certain to complete its worst-ever annual performance today.

By Graham Ruddick Last Updated: 11:09AM GMT 31 Dec 2008

In 12 months of volatile trading, the UK's leading index of shares has fallen 32pc – opening the year on 6456.90 and declining to 4392.68 by New Year's Eve – and recorded five of its most dire trading days. The market closes at 12:30pm today.
The overall annual drop puts 2008 ahead of 2002's dotcom crash of 24.48pc and the 16.15pc fall in 2001 after the 9/11 terrorist attacks in New York. Other notable 12-month declines include 11.52pc and 10.32pc in 1990 and 1994 respectively as the UK economy struggled through its last recessionn.
Confidence has deserted stock markets this year as the global banking crisis hammered shares of banks -with Royal Bank of Scotland and HBOS both recording falls of about 90pc - and fears about the depth of the global downturn hitting the previously buoyant mining shares.
David Buik, an analyst at BGC Partners, said that the size of the drop in certain sectors had been exacerbated by the fear that swept investors this year as the crisis unfolded.
"There is nothing more toxic than fear and uncertainty to galvanise equity operators to dump their books unceremoniously," he said. "That's exactly what happened in extreme degrees of volatility that had never before been experienced in the living memory of mature markets."
As the financial crisis escalated following the collapse of US investment bank Lehman Brothers in September, the FTSE recorded five of its worst ever trading days. The sharpest percentage fall of 2008 came on Friday, October 10, when it lost 8.85pc as rattled G7 leaders met in Washington in an effort to bring calm to markets. That week, during which Gordon Brown unveiled the Government's £500bn bail-out of the country's banks, saw the market slump 21.05pc, the biggest weekly fall of 2008.
However, despite the year being a miserable year one for equity markets, the FTSE's largest daily and weekly losses remain from the week of Black Monday in 1987. The market fell 10.84pc on Monday, October 19 and 12.22pc the following day, driving it to a weekly loss of 28.23pc. Overall though, the FTSE actually ended 1987 up 2.01pc.
Ironically, the financial crisis of late 2008 produced the largest four daily gains ever for the FTSE 100. The index, which began in 1984, rose a record 9.84pc on November 24, pre-Budget report day.
The FTSE has ended 2008 relatively strongly, gaining 4pc this week, and Mike Lenhoff, the chief strategist at Brewin Dolphin, predicts next year could see a recovery to the 5,000 mark because of falling inflation and interventionist policies from governments.
"Monetary and fiscal policies are expansionary, in some cases aggressively so," he added. "Not only have we witnessed the biggest financial upheaval of our time, we are also witnessing the biggest policy response of our time from central banks and governments the world over.
"Also, falling inflation worldwide will boost real household incomes and this should provide something of a boost to the growth of consumer spending – worldwide. On the corporate side, commodity deflation should help profit margins – worldwide. Commodity price deflation could end up being a powerful stimulus for global demand growth."

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