Global equity markets ended the year in positive territory as investors’ initial panic caused by the new Omicron variant of Covid-19 quickly subsided. The FTSE 100 index, which measures the performance of the largest companies in the UK, enjoyed its best month of the year, rising 4.75% and reaching its highest level since before the pandemic began. Meanwhile the S&P 500 index which measures US equities achieved a fresh all-time high.
A positive year overall
The month rounded off what has been a positive year for equity markets overall, with the MSCI World index rising more than 24% in local currency terms. The glaring outlier has been China, which has seen its stock market decline -21.7% throughout the year according to the MSCI China (CNY) index, largely due to the ongoing turmoil caused by strict regulations imposed by the government.
In the UK, amid fears of soaring inflation, the Bank of England’s Monetary Policy Committee voted 8-1 to increase the UK’s base interest rate from 0.1% to 0.25%. The move was slightly surprising given the uncertainty surrounding the impact of the Omicron variant on the economy, but even after the modest hike the rate still remains comfortably below its pre-pandemic level of 0.75%.
Full round-up of December’s performance
Here is the full round-up of December market performance. In the UK, the FTSE 100 index gained 4.75%, while medium and smaller companies, measured by the FTSE 250 ex IT index and the FTSE Small Cap ex IT index, gathered 4.95% and 5.83% respectively. In the US, the S&P 500 USD index rose 4.48% while in Europe the Eurostoxx 50 EUR index climbed 5.81%. Japanese stocks measured by the Topix JPY index increased 3.45%.
Emerging markets also had a positive month overall, with the MSCI Emerging Markets index rising 1.53% in local currencies. Latin American equities, measured by the MSCI Latin America local currency index, put on 3.88% and Indian stocks rose 2.18% according to the Nifty 50 INR index. However Chinese equities measured by the MSCI China local index declined 3.19%.
In the fixed income market, UK government bonds, measured by the FTSE Gilts All Stocks index, were down 2.65%, while long dated (over 15 years to maturity) gilts sank 4.96%. Sterling denominated corporate bonds, measured by the Markit iBoxx Sterling Corporates index, lost 1.12%. In the high yield market, the Bank of America Merrill Lynch Sterling High Yield index climbed 0.66%.
There were positive returns in the commodities market. The S&P GSCI USD index, which consists of a basket of commodities including oil, metals and agricultural items, picked up 7.59%. This was led by the rise in oil price, as crude oil futures surged 13.64% during the month. In the agricultural markets, corn and wheat futures returned 4.63% and -0.39% in USD respectively, while in the precious metals markets, the S&P GSCI Gold and Silver indices gained 2.94% and 2.36% in USD respectively.
In the currency markets, it was a strong month for the pound as it appreciated 1.75% against the US dollar, 1.38% versus the euro and 3.48% against the yen.