As the clock finally ticked down to the dawn of a new year, trading on the world stock markets had finished for 2011. And in a year that saw the USA lose its coveted triple A credit rating after nearly defaulting in early August, Greece effectively defaulting, the euro almost disintegrate, a revolution in Libya, the slowing of the rapid growing economies and the global growth turning anaemic. These events had shaken global markets throughout 2011; the year had been wild, difficult and an ominous sign of things to come.
The year was mostly dominated by the crisis in the euro zone, and markets showed this. With the France’s Cac 40 and Germany’s Dax down 17.5% and 14.7% respectively for the year. Now considering that Germany was the euro zone’s best performer in 2010, this year has marked a dramatic change in its fortunes. Not surprisingly Greek stocks fell by more than half (52%) in 2011 showing that devastating lack of belief by global investors in its future. Another noticeable decline was in the Cypriot market with it falling by a massive 72% in the year, mostly due to the decline of Greece. The UK, where growth had stalled throughout the year as Austerity started to take place, also performed badly on the stock market. The FTSE was down 5.6% for the year but the UK managed to hold on to its triple A credit rating due to its ‘credible’ deficit reduction plan, a view that I do not particularly agree with mainly because of the future prospect of growth looks unlikely.
Across the Atlantic, the US performed better than expected with its stocks actually up for the year. This is despite the reality of defaulting at the end of summer and the clear lack of credibility between both political parties to come to an agreement over deficit reduction. And while this was recognised by credit agency Standard and Poor’s, which reduced the world’s largest economy’s credit rating from triple A (which it had always been since credit agencies had been introduced), it wasn’t by the global investors. The reason being for this was due to events across other parts of the world. With fast growing economies slowing and the euro zone on the brink, the US was seen as a safe haven for investors, especially toward the end of the year. The best performing country of 2011 was also found across the Atlantic but in the southern America. Venezuela’s Índice Bursátil Caracas (IBC) was up a considerable 79% for the year. This has been put down to increased government spending as the country emerged from recession. In addition to it being one of the world’s major exporters of natural gas and oil.
In Asia the year’s picture was relatively bleak on the stock markets. Despite its high growth rates, relative to the rest of the world, China’s SSE Composite Index was lost 22% of its value in 2011. Investors seemed to question the Dragon’s short term growth prospects as global demand slumped thus impacting on China’s exports. Its historical rival, Japan also endured a bad year, in fact a horrific one. With the Tohoku earthquake in the early part of the year, it was always going to be hard for the country in 2011, and investors did not ease the pain on Japanese stocks. The results were that the Nikkei ended at its lowest level since 1982, losing a fifth of its value throughout the year.
As the year ushers in 2012 the prospects for the global economy already look bleak. With Angela Merkel, Chancellor of Germany, warning that this year will be worse than 2011. Furthermore a recent survey of prominent economists done by the BBC in the UK has shown that a euro zone recession looks an almost certainty. And that the euro zone would not remain in its current form by the end of the year, with around 40% of those surveyed predicting a breakup of the single European market. So while the fireworks and partying continue around the world the message is if you thought last year was bad, this year is going to be even worse. Happy New Year!
Author: Thomas Viegas