The FTSE 100, the index of the UK's leading shares, ended 2003 on a high, sealing a 13.6 per cent rise for the year and finally reversing a three-year losing streak.
Yet the UK stock market put in one of the world's least impressive performances last year, held back by the growing concern over consumer indebtedness and hamstrung by a relatively insignificant technology sector.
The blue chip index rose for the ninth session in a row, its longest run of gains since May 1997 to close at 4,476.9. The FTSE 100 was last at this level in July last year, but it is still 35 per cent below the peak it reached on Millennium Eve.
UK stocks have been outpaced by all the other major equity markets this year, putting the country among the globe's bottom 10 performers. Darren Winder, strategist at UBS Warburg, said the balance of companies making up the FTSE 100 accounted for the disappointment. In particular, technology stocks account for just 1 per cent of the UK market, compared with 5 per cent across Europe and 12 per cent in the US.
He said: "The main reason has been the lacklustre performance of the banking sector, which is more heavily weighted here compared with other markets. There have been persistent concerns over the level of consumer debt and we are now starting to talk about legislation to encourage personal bankruptcies."
The FTSE 100 is up 36 per cent since its nadir on 12 March, when the United Nations failed to agree a resolution to sanction the war in Iraq and when fears of deflation were at their highest, but the other major European bourses, France and Germany, have rebounded even more strongly.
Rupert Thompson, global strategist at E*Trade said that eurozone markets have generally outperformed despite their relatively weaker economic growth because they had fallen to more attractive valuations during the bear market, because they have a higher concentration of cyclical stocks and because of the strengthening euro.
Global equity investors' rediscovered appetite for risk also favoured emerging markets in 2003. Mr Thompson said: "Japan and the emerging markets remain the most obvious plays on the global economic upturn. Consequently, they are likely to perform well over the coming months."
The world's best-performing market - as measured by the points gain of their premier local index - was Venezuela's, as the country pulls itself out of one of the worst recessions on record. Indeed, recovery from recent financial turmoil helped across the Latin American region, where Argentina and Brazil - where the election of the trade unionist Lula da Silva as president had upset markets last year - also made strong gains.
The Indian and Pakistani stock markets also performed among the top 10, but the position of China, whose economic growth was the talk of the City this year, is more confused. Local markets have performed poorly, although those equities that are available to international investors have soared. The MSCI China index, which measures those, is up by 77 per cent since the start of 2003.
In the UK, the move away from defensive stocks has favoured smaller, riskier companies which have been relatively overlooked since the bursting of the retail investment bubble. As a result, the FTSE All-Share, which measures more than 98 per cent of the UK market by value, outperformed the narrower FTSE 100. The All-Share index was up 16.6 per cent in 2003, while the UK's best performing index was the FTSE Fledgling, which mops up everything outside the All-Share and which rose 56.5 per cent. The junior AIM market for growth companies was up 38.6 per cent.Reuse content