A gloomy 2012 … but brighter 2013

While the Footsie is up, the past 12 months has left the City downbeat as thoughts turn to next year

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The Independent Online

There may have been plenty of optimism at the start of the year, but now most of the City can't wait to see the back of 2012. The mood is dejected – from the big banks to the small trading houses, low trading volumes have meant lower fees and the axe has been swinging across trading floors. Bankers are still vilified by the wider world and now they are not even making as much money as they had before.

Those fearful for their jobs have the added problem of a decidedly difficult market to call, while computer-driven algorithms have been doing the role of the old-school trader. The question is, will 2013 be any better?

There is not going to be a quick fix. The market is waiting for any sort of conclusion to be reached in the US to tackle the fiscal cliff, so until then it will be especially difficult to predict how investors will behave.

Of course, you can no longer glance at the FTSE 100 and 250 to get an idea of how the country's economy is doing. Both indices, but particularly the FTSE 100, are now full of global resources and mining companies that bear little relation to the UK's economic temperature.

The FTSE 100 has lagged behind its sister index with, as the table to the right of the Footsie's top risers and fallers in 2012 shows, commodity stocks among the worst performers. Still, 6,000 points is in sight – having started the year at under 5,600, the Footsie has risen close to 400 points since then, to 5954.

The FTSE 250, meanwhile, reached a record high last week, and although it has dipped slightly back since then to 12,395.8 points, it has still climbed more than a fifth in 2012. So what do those who are brave enough to share their predictions think will happen next year?

Joe Rundle; Head of trading, ETX capital

Stocks will see a sell-off at the beginning of the year as the eurozone crisis rears its head. I think the trigger will be the Italian elections and the markets will begin to push Italian and Spanish yields up. But the second half of the year will be defined by a resolution to the woes in Europe. I think this could go one of two ways: it will either be a prompt for a 'Lehman's moment' with a full Greek exit and a full-blown Spanish default or we will see an unconditional triggering of the European bond buying programme and a strong US recovery. The US eventually could claw its way out of recession – led by a house price recovery and cheap access to energy which will in turn bring manufacturing back to the country. I expect corporate balance sheets to remain strong, which will hopefully mean a pick-up in mergers and acquisitions by the second half, and I think we could see the FTSE 100 index reach 6,500 by the end of the year.

Brenda Kelly; Market strategist, IG Index

The 6,000 number was elusive for the FTSE 100 index in 2012 in spite of numerous bouts of quantitative easing by central bankers. In contrast to the last, next year will be more about fundamentals than policy stimulus. The FTSE 100 is reasonably diverse but remains heavily weighted towards energy companies as well as the consumer and financial sectors. All told, the listed companies derive around 70 per cent of their profits from overseas. The pace of growth worldwide is likely to be an insufficient support base for metal and oil prices and this will be reflected in the profits of the relevant companies. The uncertainties surrounding the UK and its inclusion in the EU coupled with sticky inflation numbers and ensuing spending cuts will weigh on consumer confidence and household wallets. Certainly, there has been a calming seen in recent months; it may well be the calm before the actual storm. I forecast the FTSE 100 index to end at 5,600.

Angus Campbell; Market analysis head, Capital Spreads

So will the optimism that's been building up towards the end of 2012 be quashed early on in 2013 just as it has been before? Recent surveys suggest that both investors and business leaders are confident about 2013. Maybe it is just because they feel that things can't get much worse. Those investors who believe that the global economy will improve next year have been recommending that equities remain a good place to put your money relative to other asset classes with those globally exposed companies probably being a better bet than more domestically focused. I think the FTSE 100 index will stay at around 6,000 by the end of the year. Of course there are still major risks that could completely derail any economic recovery such as the European sovereign debt crisis and political risk from Italian and German elections, but maybe, just maybe, 2013 might finally provide something to smile about.

Trevor Green; Institutional funds head, Aviva Investors

I expect investors' sentiment in 2013 to be strongly influenced by how the fiscal cliff in the US is being dealt with. I think 2012 has been a surprisingly good year for UK equities. Share prices at the end of this year reflect continued positive sentiment in many of the cyclical sectors, but investors should exercise a degree of caution in 2013. Many companies have been cutting cost bases and improving productivity but this is not something which can be done in a meaningful manner year in year out. I think the index could reach 6,370 by the end of 2013 but for it to move strongly ahead, companies will have to deliver meaningful performance. This has not necessarily been the case over the past year and many of the biggest names either have structural issues or unattractive earnings profiles. There are headwinds but I believe the UK market can move forward from here, although it may struggle to move up by the same magnitude as it did in 2012.

Alastair Winter, Chief economist, Daniel Stewart

Fretting over sub-5 per cent global growth persisting for the third year in succession will mean that day-trading should continue to be favoured by hedge funds and others seeking 20 per cent plus annual returns. The FTSE 100 has become something of a Cinderella, held back by the "ugly sisters" of its oil, retail, telecoms and mining components, but the state of the domestic UK economy has not helped. I would expect it to break the 6,000 barrier fairly early in 2013 and trade within a wide range of up to 6,700 but guessing where it will be "when the music stops" at the end of December is like tossing a coin. One-way bets will be hard to find. Conservative investors are already switching away from equities to bonds and structured investments. Equities in UK multinationals which have scope to grow faster than global growth are already expensive. The hunt for yield will increasingly be focused on smaller, more domestically oriented companies.

The fallers

Morrisons (-19.22%)

With inflation outstripping wages supermarkets have suffered; Morrisons lacks convenience stores, an online store and London presence

Anglo American (-20.93%)

Like fellow miners, it was hit by the global slowdown, especially in China. Chief Cynthia Carroll resigned in October

BG Group (-26.26%)

The energy explorer admitted in October that it expected no production growth in 2013; new chief Chris Finlayson starts next month

Evraz (-32.13%)

Chelsea owner Roman Abramovich has had no cause to celebrate this year with regards to the steelmaker part-owned by the Russian billionaire

ENRC (-56.07%)

The Kazakhstan-focused miner has had a torrid time, thanks in no small part to ongoing corporate governance concerns

The risers

Lloyds Banking Group (+85.68%)

One of the worst fallers of 2011 has partially recovered but is a long way south of the price the Treasury paid for its 40% stake

Aberdeen Asset Management (+74.34%)

Fund management firm, run by Martin Gilbert, has continued to rise since joining the FTSE 100 in March

Tui Travel (+71.11%)

The tour operator was promoted to the Footsie on Christmas Eve, after a boost from holidaymakers yearning for sun in 2013

Standard Life (+64.23%)

The life assurer that floated in 2006 has had a stormer, helped by Britain's ageing population and a dividend hike back in March

Hargreaves Lansdown (+60.94%)

Another fund manager in the top five; the giant, cofounded by Peter Hargreaves has enjoyed record highs