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2022 has been painful for investors but London’s stock markets have avoided the wort of the carnage. This will shock many given today’s gloom and there’s a second piece of good news, too.
This year’s troubles are not confined to the UK. Every major economy is finding the going tough, and their stock markets have tanked as a result.
Yet there has been one notable and surprising exception. The UK has performed better than any other global stock market this year.
No, I’m not making this up.
The figures are in for the first three months of the year, to September 30, 2022, and they show the UK stock market is a safe haven in these troubled times.
While the big stock market winners of the past decade have plunged into a bear market, the FTSE 100 is quietly more than holding its own.
In a sea of red, it has somehow stayed afloat, according to new figures from investment platform Bestinvest.
Globally, international stock markets are down a staggering 24.42 percent this year, according to the MSCI World index.
Emerging markets are down 27.1 percent, MSCI shows. Countries such as Brazil, Mexico, India and Indonesia offer higher potential returns, but also carry higher risks.
What few people expected is that the all-conquering US stock market would take such a beating, with the S&P 500 index down 22.71 percent.
Technology giants such as Apple, Amazon, Facebook (now Meta platforms), Microsoft and Tesla have made investors rich over the past dozen years.
Last year they made them poorer, falling an incredible 35.96 percent, as measured by the New York tech-focused NYSE FANG+ index.
Europe has also had a stinker. The MSCI Europe ex-UK index has fallen 32.25 per cent.
These are painful figures for investors as it will shrink the value of our pensions and Stocks & Shares ISAs, but there is one bright spot.
Amid the devastation, the MSCI United Kingdom index has fallen just 1.39 percent. It would only take one positive trading day to put it back in the black.
Second best performer is Japan’s Topix index, which fell 3.84 percent.
Jason Hollands, managing director at investment fund platform Bestinvest, said large UK blue-chip businesses listed on the FTSE 100 index have proven “resilient”. “This has been the best performing major equity index year-to-date as the old economy strikes back.”
The FTSE 100 is crammed with old school stocks such as oil and gas explorers, mining companies, banks, insurers, healthcare and pharmaceutical firms.
It also has plenty of “consumer staples” businesses, that offer everyday essentials that people continue to buy in a recession, such as household cleaning, hygiene and food products.
These companies tend to be lower risk and also pay attractive dividends, which can help mitigate inflation.
The FTSE 100 has another advantage – companies on the index generate three quarters of their earnings overseas.
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So they have actually benefited from the plunge in sterling, because their earnings are worth more once converted back into pounds.
As if that wasn’t enough, the pound’s 17.27 percent drop against the dollar this year has persuaded US investors to invest in UK companies because their money travels a lot further over here.
It’s led to a buying spree.
Sterling’s fall is mostly bad news, as it drives up import costs and forces the Bank of England to hike interest rates, which will make more mortgages more expensive.
But this year it has delivered at least one surprising piece of good news, by helping to keep UK firms competitive.
This is nothing to be complacent about. Small and medium-sized UK companies, which are plugged into our domestic economy, have done as badly, falling just over 30 per cent as investors shun smaller, riskier firms.
That’s the same pattern everywhere.
In what Hollands calls an “ugly” year for everyone, the FTSE 100 has won this year’s – admittedly flawed – global beauty contest.
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