LONDON, December 22, 2011 /PRNewswire/ --
As the year draws to a close, City Index stock market expert Joshua Raymond summarises 2011, analysing the stock indices from a fundamental perspective and gives his thoughts on what is likely to be in store for 2012. Including a snapshot of stocks and sectors to keep an eye out for.
Joshua Raymond, Chief Market Strategist, City Index:
It has been a bearish year for the FTSE 100, with the benchmark UK index currently looking likely to post a 9% loss on the year after growing 22% in 2009 and 9% in 2010. The 9% fall on the year tells a tale of difficult trading conditions for investors and bearish sentiment, with investors fearful that the world is teetering back on the brink of another recession.
To put this year's loss on the FTSE into greater perspective, the last 26 years have netted an average yearly growth in the UK's benchmark index of 7.48%. During that time, there have only been six bearish years and interestingly enough, 2011 would actually mark the best bearish year for the FTSE 100 over the last six years.
This will inevitably beg the question, with so much still at stake in the eurozone, is the worst yet to come? One's likely answer to this question will be defined by whether one sits in the sceptical or optimistic camp. With spread betting, it is possible to take a position on the markets, irrespective of whether they are rising or falling.
2011 was dominated by three key themes
Trading in 2011 has been dominated by three key themes: Market shocks, slowing growth and the eurozone debt crisis.
These main market shocks have contributed to sharp equity falls and damaged longer term market sentiment: the Arab Spring Uprising, Japanese Tsunami and US Credit Rating downgrade.
The Arab Spring Uprising, typified by the revolution and toppling of the long standing rulers of Tunisia, Egypt and Libya, triggered sharp rises in the price of crude oil on global supply fears. Nymex crude oil reached a record high of $114.83 at the start of May, and this rise applied significant pressure on stocks globally initially as traders had to come to terms with higher crude oil prices escalating business costs.
The Japanese earthquake and tsunami on March 11 triggered the first real market shock of the year, with the Japanese Nikkei falling over 1000 points before quickly recovering, and European indices following suit in similar fashion. The tsunami was devastating to both Japan and companies that relied upon produce from the region, such as car manufacturers.
In early August, the somewhat surprising cut of US's top notch credit rating by Standard and Poor's, after weeks of uncertainty over the raising of the US debt ceiling, alongside a deterioration in the sovereign debt crisis played a role in the biggest equity losses of the year. From August 1 to 9, some seven trading days, the FTSE 100 lost as much as 1100 points or 19%, putting the UK index in bear market territory and hitting its lowest point in the year, 4791.
Slowing growth and the eurozone debt crisis has also significantly impacted market sentiment this year, and these two themes are likely to play a major role in how markets progress next year. Investors have been particularly troubled by the somewhat obvious slowdown of economic activity both in developed nations and developing economies such as China. This has raised fears that a global double dip recession could be on the cards.
At the same time, and linked to the growth issues, is the fact that the eurozone sovereign debt crisis has put the whole eurozone on the brink of failure, with Greece requiring new bailouts and Italy and Spain struggling to raise finance at acceptable costs in the debt markets.
The debt crisis has claimed the heads of multiple governments, with a swift change in power in Spain, Greece and Italy. Swift change in the governments of these countries has coincided with lack of political unity and progress in Europe as a whole, with countless disagreements and leader bashing in public, which culminated in the seeming isolation of the UK from the EU. And what's more, potential credit ratings downgrades for Europe's top notch club has kept market rallies short lived and several unanswered questions going into 2012.
Outlook for 2012
2012 is likely to be dictated by a number of important events but three key themes, which will likely be inextricably linked, stand out, such as the eurozone sovereign debt crisis, slowing global growth and the quantitative easing global monetary policy.
Note that all of these key themes for 2012 are a mere continuation of some of the major themes of trading in 2011, and therein lies part of the problem.
For more information, read the 2012 Fundamental Outlook at City Index which includes a snapshot of stocks and sectors to keep an eye out for in 2012.
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SOURCE City Index