The FTSE 100 index of leading UK company shares finished December at 6,556.10, falling by 166.52 points or 2.48% during the month. A much anticipated ‘Santa rally’ unfortunately failed to materialise, resulting in a mixed year for investors.
For the whole of 2014, the FTSE 100 fell by 2.86%. A plummeting oil price and fears about how Russia might cope with this and economic sanctions prompted falls in December across most global stockmarkets.
Of course the FTSE 100 is only one measure of equity investing; those using the FTSE Techmark as a proxy saw a gain in 2014 of 8.62%. Worst UK index performer last year was the Alternative Investment Market (AIM) which experienced losses of 18.62%, after entering bear market status in October.
Tough times ahead?
Smaller companies, such as those represented by AIM, often act as a barometer for the wider economy, which could suggest tougher times for investors in 2015. However, the most bullish forecasters are already predicting the FTSE 100 could close this year at 7,700 points.
This forecast came from the UK arm of US investment bank CitiGroup. Morgan Stanley are predicting 7,200 and Barclays have plumped for 7,300. All three forecasts would represent a new all-time high for the index, which previously reached 6,930 at the end of 1999.
Falling oil price
As we start the New Year, the falling oil price continues to dominate investor sentiment. Oil prices fell to a five and a half year low on 5th January following concerns about a stock surplus and continued demand weakness. At the time of writing this, Brent Crude Oil Futures stood at $55.35 a barrel, losing close to another 2% in value.
This falling oil price is likely to challenge the viability of the US shale boom in 2015. As a result of lower oil prices, shale drillers are faced with spending money faster than they can possibly make it, largely due to their high debts which were taken on to fund rapid expansion.
It will be interesting to see whether the US government intervenes to support this new industry, which brought the country close to energy self-sufficiency.
Eurozone woes
In Europe, the euro has fallen to a nine year low against the US dollar. Investors are concerned about European growth prospects as more quantitative easing, recently hinted at by the European Central Bank (ECB), is not expected to help the ailing currency. The future of Greece in the Eurozone has also been questioned, following the appointment of new politicians who are keen to cut austerity measures there.
Closer to home, UK property prices are in the headlines again, with prices forecast to rise this year by around 4%. Some commentators believe prices could rise by as much as 7.4% in 2015, but with big regional variations expected and much depending on the outcome of the general election in May.
House price outlook
The annual rate of house price growth continued to soften at the end of last year, according to the latest figures from lender Nationwide. House price inflation fell to 7.2% for the year to December, down from 8.5% the previous month. On a monthly basis, average prices rose by just 0.2% in the December, resulting in an average house price of £188,559. Nationwide does however expect house price growth to pick up again during the coming months.
Price inflation in the UK has fallen to 1% for the year to November, which reduces the probability of an interest rate rise in 2015. Markets still think the first rate rise, which is likely to be very modest, could be in late 2015 and this forecast is shared by most economists.
Expectations for low inflation this year, low global growth and continued economic struggles in the Eurozone is likely to mean interest rates remain lower for longer.
The benchmark 10 year UK Gilt yield currently stands at 1.76%. £1 buys $1.52530 or €1.28130. The Forex Gold Index is $1192.00/oz and the Silver Index is $15.71/oz.
Download our Monthly Investment Update for January 2015 as a PDF