Britain’s blue-chip share index has ended 2022 on a modest annual gain, eked out during a year in which rising inflation, higher interest rates, the Ukraine war and recession fears all hit global markets.
The internationally focused FTSE 100 share index ended the final trading day of 2022 almost 1% higher than it began the year, helped by a sharp rise in share prices of energy companies and miners, sectors that have benefited from Russia’s decision to plunge Europe into a gas supply crisis.
One of the few major indices to achieve a rise this year, the FTSE 100 closed at 7,452 points on Friday, down 61 points or 0.8% during the final session of the year, but 0.9% higher than it began 2022.
Other European markets had a tougher year, with the pan-European Stoxx 600 index losing 12.4%. Germany’s DAX fell 12.3%, its biggest annual drop since 2018, as Europe’s largest economy was rocked by the Ukraine war, the energy crisis and double-digit inflation. France’s CAC index lost 9.5%, during a year in which Paris briefly overtook London as Europe’s biggest stock market.
BAE Systems was the best-performing FTSE 100 stock during 2022. The defence contractor’s shares have surged by 55% during the last year. It “benefited from new orders and no doubt the Ukraine war has focused investor attention on the longer-term prospects for the defence sector”, said Neil Wilson of Markets.com.
BP and Shell gained about 43% during 2022, as oil majors reported surging profits thanks to the rise in oil and gas prices because of the Ukraine war.
Shares in Glencore, the FTSE 100-listed commodity trading and mining company, jumped by 50% during the year as the energy crisis drove up demand for coal.
But the more UK-focused FTSE 250 index, of medium-sized companies, had a rough year, falling by 19.7% in 2022.
“The FTSE 250 is more closely correlated to the UK economy and has been weighed down by this year’s domestic economic and political uncertainty,” said Victoria Scholar, the head of investment at Interactive Investor. “The FTSE 100, however, is more of an outward-looking global index that does not reflect the fundamentals of the UK economy.”
Global markets were on track for their worst year since the global financial crisis of 2008, as soaring inflation driven by the energy price shock prompted central banks to lift interest rates sharply.
The pound had its worst year against the US dollar since 2016, dropping more than 10%. The dollar benefited from the US Federal Reserve’s hefty interest rate rises this year, while the Bank of England may be closer to ending its tightening cycle, as the UK economy could be falling into recession.
Although the dollar fell on Friday, it was still on track for its biggest annual gain against other currencies since 2015.
Soaring inflation, central bank interest rate rises and fears of a sharp slowdown in global growth gripped markets this year.
Stephen Innes, a managing partner at SPI Asset Management, said: “Global growth slowed sharply through 2022 on a diminishing reopening boost, fiscal and monetary tightening, China’s protracted Covid restrictions and the energy supply shock resulting from the Russia-Ukraine war.
“It was a challenging year for traders to navigate an entirely new set of shocks triggering the third consecutive year of outsized market swings. On the economic front, there’s little doubt that inflation was again the biggest story of the year, but this time it was accompanied by a surprisingly aggressive central bank response.”
Japan’s Nikkei index lost 11% during the year, while China’s CSI 300 index fell by more than a fifth, as Covid-19 lockdowns hit growth.
India’s benchmark equity index, the Sensex, defied the wider losses by rising 4.4% during 2022, though this was its smallest annual gain for six years.
The US stock market also had a tough year, with the S&P 500 index dropping by about 20% and the technology-focused Nasdaq losing a third of its value as big tech stocks slumped.
“In comparison, the Dow Jones’s losses of 9.5% are relatively modest, as traditional stocks are less sensitive to interest rates than overvalued tech stocks,” Raffi Boyadjian, the lead investment analyst at the brokerage XM, said.