Saturday 31 December 2011

European markets in 2011

FTSE 100 loses 5.5% in 2011 as eurozone crisis unnerves investors
Around £85bn wiped off the value of UK's top companies, but FTSE outperforms European markets

30 December, 2011

In a year dominated by the European debt crisis, the FTSE 100 has lost 5.5%, knocking around £85bn off the value of Britain's top companies.

The leading index closed at 5572.28 in a half day of trading ahead of the new year, up 5.51 points on the day. Since January 1, it has fallen by 327 points.

The decline accelerated during the summer as the scale of the eurozone's problems became apparent, with Italy and Spain following Greece onto the sick list and politicians seemingly unable to come to an agreement on how to tackle the situation. After touching 6105 in February, the index reached its nadir of 4791 in August, before recovering some ground on optimism a solution could be reached. But with investors expecting agencies to downgrade France's AAA credit rating, fears the European bail out funds may not be enough and worries about a global recession and a Chinese slowdown, the rally was muted with December recording a gain of just 67 points.

The UK outperformed European markets, however, mainly on the hope the fallout from the crisis on the continent could be contained. The Euro Stoxx 50 is on course for an 18% decline, with worries of sovereign debt defaults and banking failures dominating sentiment. Germany's Dax is currently down around 15%, France's Cac and Spain's Ibex 17.5% and Italy's FTSE MIB down 26%. In Greece, one of the first to be gripped by the debt crisis, the Athens stock market has lost 61%.

In Japan the Nikkei 225 index ended down 17% at 8455, its lowest level since 1982. Apart from the eurozone crisis, the country also suffered from March's devastating earthquake and tsunami which hit its manufacturing base hard. Meanwhile in Australia shares fell 14.5% during 2011 while China dropped 22% on fears of a property bubble and a hard landing for its hitherto booming economy.

The world's biggest economy is bucking the downward trend. In the US the Dow Jones Industrial average is up more than 6% at the moment while the more broadly representative S&P 500 is just marginally higher at 1263.

Simon Denham at Capital Spreads said 2012 was unlikely to be any easier for investors:

We have further austerity measures to look forward to, together with a Eurozone crisis that is far from resolved. There is also uncertainty over how China's slowdown will land, together with political issues, like the 2012 US elections and concerns over Iran, to contend with.

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