Things can only get better: shares end year with £46bn wiped off

The stock market ended 2014 with a whimper, signing off a year which saw more than £46bn wiped off the value of Britain’s biggest companies.

The oil crisis and the global economic malaise which precipitated it combined to create tough markets for the major international shares that make up the bulk of the FTSE-100 index. Despite a modest “Santa rally” lifting the Footsie in recent weeks and a slight gain today, it still ended the year 183 points weaker than it started – a fall of nearly 3 per cent, to 6,566.09.

Oil-related companies made up many of the biggest fallers, with Tullow Oil down 52 per cent on the year, Petrofac down 41 per cent and BG down 33 per cent.

The British stock market, largely dominated by energy and commodities companies, fared far worse during the year than its US and European counterparts, which mostly had a positive year.

Analysts said it would have been far worse had the Bank of England not been able to keep interest rates low – also partly thanks to the weak oil price. That in turn meant UK government bonds (gilts) had their best performance since 2011, returning 14 per cent over the year, reflecting the low interest rate environment.

“Low oil prices and low inflation, and the likelihood for further economic deceleration in our view is likely to leave rate hikes off the table into 2016,” said Richard Kelly, of Toronto-Dominion Bank in London. “Gilts should remain well supported.”

The oil price – which fell again today – ended 2014 at almost exactly half its value at the beginning of the year, plunging from above $110 a barrel for London Brent crude to just $56.82.

Oil markets rounded the year off as their worst since the global financial crisis-hit 2008. The impact of the oil crisis has been felt globally, keeping down inflation and boosting economies in oil-importing countries like the UK, while devastating countries dependent on producing crude.

Today, the Opec member Venezuela’s official statistics office admitted the country was deep in recession for the whole of 2014, while Russia, whose currency has been devastated by the falling value of oil and gas, confirmed that inflation in the country had surged to 11.4 per cent, with food prices up 15.4 per cent during 2014.

Also hit by the impact of western sanctions on its financial system, Russia today bailed out its state bank Gazprombank by buying £437m of its shares, adding to a £1bn recapitalisation of the VTB bank a day earlier and a pledge last week to offer more than £1.5bn in bailout funding to another institution, Trust Bank.

Commodities prices had a sour year as well, due to flagging demand from China. The price of copper fell 14 per cent in the year, while silver and platinum were off 19 per cent and 12 per cent respectively. Gold fared marginally better, down just over 1 per cent.

The weak world economy hit agricultural goods too, with cotton and soybean prices down more than a fifth. Of the major farmed commodities, only coffee had a boom year for prices due to a drought in Brazil. It ended the year up 51 per cent.