Home Business Insights & Advice FTSE ended 2021 in fine form – 2022 looks even better, here’s why

FTSE ended 2021 in fine form – 2022 looks even better, here’s why

by John Saunders
22nd Feb 22 6:10 pm

On the final day of December 2021, news broke that the UK’s flagship blue-chip index, the FTSE 100, had made a surprise recovery after a COVID-restriction bloodbath of a year, rallying by an eye-popping 14.3%. This was the best year recorded by the FTSE since 2016, despite the pandemic shock that began the previous year.

Given the economic knock-on effects of international virus containment methods, including unprecedented repeat-lockdowns and massive disruptions to supply chains, few if any index watchers had foreseen that the index, which began 2021 at 6480 points, would conclude it at 7384. During the year, signs of recovery were far from promising: that 14.3% end-of-year flourish was preceded by an equal and opposite nosedive, the worse decline recorded since the shattering 2008 worldwide financial crisis.

What changed? One major factor contributing to a strong return of economic confidence was undoubtedly the mass launch of vaccines, paving the way for widespread economic re-opening. Central banks and governments, acutely aware of the economic damage the pandemic had unleashed, also cooperated to defibrillate the economy with stimulus packages.

With confidence returning, investors took a phlegmatic view of the supply chain disruptions occasioned by the pandemic control measures. They remained stoically unperturbed about inflation and emerging viral variants like Omicron. Stocks began to lift steadily as a consequence.

And the FTSE 100 wasn’t alone. The more domestically related FTSE 250 index rose slightly higher than the 100’s December 2021 highpoint, hitting 14.6%. Other stock market indexes followed suit, with the MSCI World Index tracking global equities surging by 17%.

Digital wealth management firm Moneyfarm described 2021 as “an excellent year for equity returns.” Chief Investment Officer Richard Flax elaborated:

“The second half of the year has seen a little more volatility than the first half – thanks largely to the Omicron variant causing uncertainty – but the likes of the US, Europe and Japan have seen strong growth.”

Of course, it’s essential for level-headed analysts not to get too bullish about future prospects: as the old stock market adage has it, “so goes January, so goes the year” – and by the close of January 2022, the same FTSE that had risen to 14.3% by the end of the previous month had fallen again (the FTSE All-Share declined by 0.4%).

But wise heads responsible for expert market analysis have sound reasons to expect matters to improve again in 2022. And those at independent financial research and advisory form LeapRate, which is followed by thousands of investors, traders and Forex industry participants, are far from nervous about what the coming year has in store.

Forecasts from leading investment platform AJ Bell suggest that aggregate FTSE 100 net profit is on course to double its 2016 accomplishment in 2022, with dividends expected to reach a fifth higher (rising from the 3.4% of January ‘22 to 4.1%). However, Credit Suisse is somewhat more optimistic, forecasting that London blue-chips can expect 7%.

2016, as many will recall, was a bumpy year for the FTSE, with former Prime Minister Theresa May embroiled in fraught and protracted struggles over Brexit. Yet the index spent much of 2021 below or no higher than the 2016 watermark for the reasons described above. And yet the index ended the year on an unpredicted high note, and according to Deutsche Bank and HSBC analysts, economies in Europe and the United States alike are likely to grow by between 3.55% and 5% in 2022.

However, we are still living through uncertain times, in which the unexpected can come out of the blue to disrupt the steadiest of trends and the most considered of projections. And one such event happened in the UK in February 2022 – one that seems poised to have international repercussions, as other counties consider following suit.

The point in question refers to British Prime Minister Boris Johnson’s announcement in the House of Commons that all remaining Covid rules would be scrapped. The FTSE 100 instantly gained 1.1% amidst suddenly reasonable anticipation, formerly absent, that all of the impediments imposed on the economy were about to evaporate as the ‘dangerous pandemic’ status of the coronavirus was ended. The removal of restrictions includes a full return to the workplace for all employees and ditching the requirement to remain in self-isolation after a positive Covid-test.

Travel and leisure stocks quickly surged, driving the index upwards, and a fully opened economy is almost sure to drive it even higher as the year unfolds.

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