The FTSE 100 has ended a tumultuous year at an all-time high, boosted by a surge in mining companies and dollar earners and hopes of a spending spree by the US president-elect Donald Trump.
Britain’s blue chip index closed a shortened trading day at 7,142.83, up 22.57 points, beating the previous intra-day peak of 7,129.82 set in October. It was the third day in a row that the the index hit a closing high.
Over the course of the year, it rose 14.4%, adding £232bn to the value of Britain’s top companies and marking its best annual performance since 2013, a time when recessionary fears were abating and the Greek crisis seemed to be easing. It came within a whisker of recording its biggest yearly rise since 2009.
The new peak came despite the shocks of the Brexit referendum vote and Trump’s election, and a slump to 5,499 in February on concerns about a slowdown in the global economy, particularly in China. The end-of-year close is almost 30% higher than the February low.
The rise was driven by mining companies and overseas earners, which dominate the leading index. The FTSE mining index has jumped 100% over the year, with Anglo American the best performer, up 287%. Signs of recovery in China and the prospect of new infrastructure spending by the incoming US administration sparked the revival, while the 17% slump in the pound since the Brexit vote in June has benefited those companies that earn their money overseas. Over the year, sterling has fallen 16.5%, its worst performance since the financial crisis in 2008 when it lost 26.5%.
A stable performance from the UK economy despite the dire warnings ahead of the EU referendum also provided support, and a recovery in the oil price was also factor in the rise of commodity companies. Banking shares moved higher in the second half of the year on signs that the prolonged period of low interest rates could be over, with the US Federal Reserve raising borrowing costs in December and the likelihood of a UK rate rise increasing.
In dollar terms, however, the FTSE 100 was actually down 5% over the year, because of the decline in the pound. Analysts at KPMG said the performance of FTSE 100 companies with more than 70% of their market outside the UK was up 20% over the year. But those with 70% of their business in the UK were down 6%.
The more domestically focused FTSE 250 also rose during the year, but by a much less impressive 3.71%.
Despite fears that the Brexit vote would have serious repercussions, the FTSE 100 was the best-performing European market, as continuing worries about the eurozone, banking problems in Italy and the prospect of elections in Germany and France next year limited gains.
Germany’s Dax added 6.87% over the course of 2016, and France’s Cac climbed 4.86%. Italy’s FTSE MIB fell 10.2% as the banking worries, most recently the proposed state bailout of Monte dei Paschi di Siena, combined with the resignation of the country’s prime minister, Matteo Renzi, to unnerve investors. Spain’s Ibex lost 2.01%.
US markets were boosted by the Trump effect, with the Dow Jones Industrial Average hitting new peaks during the year and flirting with the 20,000 barrier.
Brazil’s Ibovespa stock market index was the best performer of 2016, up 63% on hopes that the recently appointed president, Michel Temer, could bring some stability to the country and end the worst recession for decades.
China’s Shanghai Composite fell 12%, failing to recover all of its losses from earlier in the year, with a weak currency and unpredictable actions from policymakers blamed for the declines.
Gold rose 9% after three years of decline, benefitting from its status as a haven for investors during the political and economic uncertainty earlier in the year, although it lost some of its lustre as December approached.
Brent crude prices jumped nearly 53%, both on signs of economic recovery but mainly due to a long-awaited agreement between Opec and other oil producers to curb output. This marked the biggest annual gain since 2009.
Despite the FTSE 100 reaching its new peak, analysts said 2017 could be more volatile, with impact of European elections, the triggering of Brexit discussions and the reality of Donald Trump in the White House.
There could also be a delayed impact on the UK economy from sterling’s weakness since the Brexit vote feeding through to higher prices. KPMG’s Yael Selfin said: “We could start to see weaker consumer spending as inflation starts to bite which in turn may impact our indices in 2017.”
