By Jack Barnett
European stocks have notched their worst annual performance in four years driven by investors sweating over soaring inflation, rising interest rates and the prospect of a tough recession in the bloc.
The pan-European Stoxx 600, an aggregate of Europe’s top indexes, finished 2022 down nearly 13 per cent, its biggest annual decline since a drop of just over 13 per cent in 2018.
Some of the continent’s largest indices have registered double digit stumbles this year.
Germany’s Dax fell over 12 per cent, while France’s Cac 40 lost over 9.5 per cent.
Meanwhile, London’s FTSE 100 has outperformed all its global competitors this year and one of the few major indexes, when measured in local currency terms, to have finished 2022 in the green, climbing near one per cent.
Wall Street’s major indexes, the S&P 500, Dow Jones and Nasdaq, have all shed around a fifth of their value this year. The S&P has sealed its worst year since the financial crisis.
FTSE 100 finished 2022 up (just about)
The capital’s premier index is home to many of the world’s largest energy producers, which have benefitted from gas, oil and other commodities surging this year after Russia invaded Ukraine and global demand scrambled back to pre-pandemic levels.
Oil majors Shell and BP, two of the FTSE 100’s largest constituents, added more than a third in 2022.
Miners such as Glencore and Rio Tinto have propelled the FTSE 100. The former rocketed more than 40 per cent.
The FTSE 100 today closed down 0.81 per cent on the final trading day in the City. The day was shortened ahead of new year’s eve.
Investors around the world have been spooked by inflation in the UK, Europe, US and other major economies returning with a vengeance, forcing central banks to jack up interest rates aggressively.
Prices climbed as much as 11.1 per cent in Britain, the quickest acceleration in 41 years, while similar milestones were hit across the pond and in the eurozone.
The US Federal Reserve, the world’s most influential monetary authority, has raised rates at the fastest pace since the early 1980s this year, putting downward pressure on stocks globally.
Higher interest rates tend to weigh on stocks by making fixed income assets, such as bonds, more attractive and knocking companies’ future valuations by increasing the discount rate.
Similarly, the European Central Bank launched its first rate increase since 2011 and its president, Christine Lagarde, told investors to expect more big hikes in 2023 earlier this month.
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