January Market Update
Just as we thought we may end the year with the FTSE 100 finishing above 6000, the final figure was 5899. Christmas Eve was the high point with the FTSE finishing above 6000 but judging from the markets it would seem that Father Christmas didn't quite deliver what investors were hoping for. Overall the FTSE had a good run over the last six months of the year and posted a 9% gain in 2010.
It's easy to see the positives in these numbers but they hide the fact that the markets continue to be volatile across most sectors. Judging by some of the analysts forecasts for 2011, it seems that we could once again be in for a roller-coaster ride fuelled by the steady stream of divergent economic indicators.
The housing market remains in the balance; according to the Nationwide House Price Index, house prices in the UK rose by 0.4% over the month. Over the year the Nationwide also recorded annual house price growth of 0.4%. Essentially, very little change to house prices over the year may be good news to some who were fearing a significant drop. It doesn't hide the fact, though, that if you're trying to buy or sell a property it remains very challenging times.
The price of oil increased over 2010 by 13 per cent. A continued increase in the price of oil will hinder the global recovery as it increases the cost of production and manufacturing. The pain is being felt by UK motorists who also have an increase in VAT and fuel duty this January and there's more to come with fuel duty increasing again in April.
Against the Euro, the pound climbed 2.9 per cent over 2010. Sterling closed the year at €1.1601, up from its low of €1.0967 in March. The pound has been steadily weakening against the dollar, closing the year at $1.55. Interest rates were kept at record lows across the UK and Europe, not helping savers struggling to find a decent return for their money. Share prices have arguably benefited from investors looking to the markets to generate returns not being found in savings accounts.
Further afield, China's growth continues to influence the global markets, although as highlighted last month, there are increasing concerns over the sustainability of this growth. Rising prices and inflation are starting to fuel the concerns. The most notable growing economies over 2010 include Argentina, Russia and Thailand. Investors should be wary of the headline figures as investing in emerging markets is not without risk.
So what lies in store for 2011? Possibly more of the same, volatility and more talk of the fragile global recovery will no doubt be dominating the business pages. For those investors not wanting any nasty surprises, portfolio diversification remains of paramount importance.
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