What next for the FTSE after another sliding year?

The blue-chip index scaled the heights and then plumbed the depths in 2015, writes Jamie Nimmo. We look back on last year’s winners and losers, while experts give their predictions for 2016

Britain’s blue-chip index suffered its biggest fall in four years in 2015 as the commodity price rout took its toll on the FTSE’s oil and mining superpowers. 

The index closed on the final day of 2014 at 6,566.09. Last night it closed on 6,242.32 – a fall over the 12 months of 4.93 per cent. The last calendar year when the FTSE 100 did worse was 2011, when the index shed 5.5 per cent.

The Footsie burst out of the blocks at the start of the year, breaking the 7,000 barrier for the first time in its history. The index went on to peak at 7122.74 on 27 April, but then it retreated in May as fears about China’s slowing economic growth set in.

The poor performance of the blue-chip index, dominated by multinationals, contrasted with an 8.36 per cent rise on the FTSE 250. European indices also beat the FTSE, with Germany’s DAX and France’s CAC 40 climbing by 8.5 per cent and 10 per cent respectively. 

It was a year of extreme volatility, characterised by “Black Monday” when China’s Shanghai Composite index crashed 8.5 per cent in a single day in late August. The rout sent shockwaves around the financial world as doubts exploded about the strength of the pivotal Chinese economy. The FTSE 100 slumped 4.7 per cent on the same day – its worst day of trading since the global financial crisis in 2009.

The biggest losers of 2015 were mining stocks, with the four biggest fallers hailing from the beleaguered sector, while the oil price slump to below $40 a barrel also sent oil producers reeling. 

City experts are cautious, even downbeat, about 2016, with many suggesting that low oil and metals prices will continue to hold back the FTSE, while some say that an EU referendum could also damage investor sentiment.

Review of the year: winners and losers on the ftse 100

Winners

The Dublin-based industrial conglomerate DCC had an exceptional year, with the stock rising 59 per cent as its waste management, technology and pharmaceutical distributions businesses all delivered decent profits. The acquisition of the French liquefied gas distributor Butagaz from Shell for $519m (£353m) in May also boosted the shares; investors believed DCC had picked it up on the cheap. 

The UK housebuilders Taylor Wimpey and Berkeley also had a stunning 2015, with the former up 53.5 per cent and the latter 48.7 per cent over the 12 months. Both were helped by the continued rise in house prices and the Chancellor’s subsidies to first-time buyers acquiring new-build properties. The firms also rode out fears of the impact on the housing market of possible rise in interest rates. Investors were attracted by the promise of a big boost to dividends from Berkeley over the next three years. 

Hargreaves Lansdown’s stock went on a tear in 2015, also supported by government policy. In this case the driver was George Osborne’s new pension-liberalisation reforms, which will allow more people to invest and manage their nest-eggs directly through providers such as Hargreaves Lansdown. The DIY investment platform’s shares jumped 50.2 per cent. 

Inmarsat, the satellite operator, put on 42.2 per cent in 2015. Investors liked the look of a tie-up with Deutsche Telekom, announced in September, which will pave the way for broadband satellite phone connections on European flights in 2016. Analysts said that by taking a lead, Inmarsat could be able to dominate the European market.

Losers

The global commodity slump propelled the descent of four of the five biggest fallers on the index in 2015. Miner Anglo American suffered the most, down 75 per cent over the year. Iron ore plunged to a  10-year lows, hitting the financial health of Anglo’s mines. The group, led by Mark Cutifani, has a huge debt pile worth about $11bn. It made $3bn in the first six months last year, prompting speculation that the company will soon cut its dividend.  

Trading house Glencore also felt the full force of the commodity slowdown. It has declined by 41.3 per cent since 1 January 2014, amid concerns that sluggish metal prices would stymie earnings. Glencore embarked on a $2.5bn rights issue to try and address the problem, but investors remain concerned about its $30bn debt mountain. 

Miner BHP Billiton, down 41.3 per cent, faced similar woes but also had to contend with a mining disaster at its Samarco joint-venture project in Brazil, with at least 17 people killed Forecasts for the clean-up bill and potential fines run into the billions. 

Standard Chartered was the only big faller last year without direct exposure to the commodity slump, down  38.5 per cent. The emerging markets lender continued to decline despite the arrival of former JP Morgan man Bill Winters as chief executive. He cut the dividend and sacked staff but concerns remain that earnings will stay flat. 

Rounding off the top five fallers was another miner: Antofagasta. Earnings at the copper specialist were hit by the six-year low in copper prices, with the shares sliding 37.5 per cent.

The year ahead: what the experts say

David Buik is a commentator at Panmure Gordon

FTSE 100 prediction: 6,000

Though I’m comfortable with the idea that the UK’s economy will grow by  2.4 per cent in 2016 and that petrol will remain cheap until the second half of the year, I’m not overly optimistic that the FTSE 100 will perform with admirable deftness. Why not? Too many imponderables and clouds of concern prevail in the form of no inflation, which damages profit margins, resulting in limited corporate growth and probably falling dividends in the energy and mining sectors. 

Also, the EU referendum is set to damage business sentiment in 2016 and the Government has spectacularly failed to make the positive case for the benefits of the single market and EU  membership. 

Anyway, “nil desperandum”. Although I do not expect the FTSE 100 to finish 2016 much above the 6,000 threshold, there is money to be made. 

First, M&A activity will be knocking on the door – companies need to deliver shareholder value. We expect the pharmaceutical, technology and media sectors to remain very active and therefore lucrative. Also, it will not have escaped many people’s attention that the FTSE 250 closed 2015 in positive territory. So expansion and growth will come from those companies that aspire in 2016. 

Next year is all about stock picking.

Brenda Kelly is head analyst at London Capital Group

FTSE 100 prediction: 5,950

Oil and base metals floundered in 2015 and we can expect that a lot of the big FTSE 100 constituents will remain out of favour.

Barring some potential for consolidation in the commodity industry, this will probably keep the Footsie grounded in 2016.

While the Bank of England has insisted that the next monetary policy path will be the fork in the road that leads to higher interest rates, growth and inflation remain subdued. So UK financial companies may be unable (in the absence of higher rates) to pick up the slack. 

With this in mind, investors may start to look at other laggards from the year gone by as an option.

There was certainly been a small reversal of fortune for some of the big defence names, including Rolls-Royce and BAE Systems, in the latter part of 2015. 

Since the Paris attacks, this has been an area back in focus –  and the fact that the UK plans to increase its defence budget in light of the concerns over Isis is likely to mean that we will see additional gains in the sector. 

It won’t necessarily carry all defence stocks higher, however, and even the upside moves we saw last month appear to have run out of steam.

Russ Mould is an investment director at AJ Bell

FTSE 100 prediction: 6,150

I think the FTSE 100 will do well to come in flat for 2016, so – in the spirit of being an optimist – I’ll go for 6,150.

“Brexit” fears will be unhelpful to sentiment but the FTSE 100’s biggest potential problem is its make-up; the dominance of banks, oil companies and miners is unlikely to be helpful if we remain trapped in a low-growth world where deflation remains every bit as likely as the inflation that central banks are trying, vainly, to stoke.

According to a consensus among analysts, banks, miners and oil groups are forecast to generate 40 per cent  of the index’s profits in 2016.

It is hard to see why those predictions should be readjusted upwards in the current environment, and further forecast cuts could therefore weigh heavily.

The index also remains prey to dividend reductions. Eight FTSE 100 companies have cut or hinted they will cut their shareholder payouts, and cover looks very thin at some of its highest yielders, notably the drugs giant GlaxoSmithKline and iron ore giants BHP Billiton and Rio Tinto.

Portfolio builders may be better off focusing on stocks that offer dividend yields of 3 per cent to 4 per cent. These companies should also have good cover and be capable of increasing their payouts over time. That’s in contrast to those where there is a yield of 7 per cent or more and cover is thin.

Alastair McCaig is a market analyst at IG

FTSE 100 prediction: 6,650

In 2015 the “buy on the dip” trader finally lost his swagger and confidence. Where the blame lies is difficult to pinpoint, but playing their part have been Greek political instability and its eurozone membership, the Chinese equity market collapse in August and an often muddled-looking gameplan for raising American  interest rates.

Surely 2016 will offer us more fruitful returns? Although we have stopped talking about it, Greece remains a thorn in the side of the European Central Bank (ECB), and this particular can has only been kicked down the road rather than being an  issue resolved. If questions over eurozone membership weren’t bad enough, those over Britain remaining part of the EU could well come to a head in the summer. 

The mining sector has been the first area to react to the unsustainable dividend yields being offered by many companies, triggered by calamitous commodity prices. Throughout, the ECB president Mario Draghi has encouraged calm with his mantra of “whatever it takes”.

The FTSE looks set for a difficult start to the year, with much more uncertainty hanging over it than in years gone by. So before a more meaningful effort to break through 7,000 can be seen, we could well test lower levels.   

Comments