Here’s a question: which year saw a global stock market boom in which the Nikkei rose by 4.5 per cent, the DAX by 11 per cent, the S&P 500 by 16 per cent, the Shanghai Composite by 20 per cent and the Nasdaq by 47 per cent?
The somewhat surprising answer is that that is the performance of the stock markets over the last twelve months – yes, the year of the plague, the year which saw one of the fastest-ever bear markets in the spring yet which went on to see an even-stronger rebound. With one exception, that is: the UK. Here, the FTSE100 is down 14.5 per cent since January and the FTSE250 19 per cent. Remarkably, the real divergence in performance only began at the end of May – since then, UK markets have gone slightly backwards while others have powered ahead.
We have become used to US markets outperforming the UK market over the past decade, but the disparity during 2020 has been bizarre. As far as stock market returns are concerned, Britain and the rest of the world are on two different planets. True, the UK economy plunged more during the second quarter than just about any other country, with GDP falling by 20.3 per cent compared with an average of 12 per cent for the rest of Europe. It is also true that the long shadow of Brexit has not fully passed on yet – there is still no trade deal with the EU, and there is nothing markets like less than uncertainty.
But can that really be the whole story? There have been times over the past four years when progress on Britain’s departure from the EU looked a lot more muddled and uncertain than it does now. Moreover, Britain’s service-led economy spent a few weeks’ longer in lockdown than most other countries, so second quarter figures were bound to be worse. June, indeed, saw a big rebound in retail sales, even though the shops were only open for half the month.
It seems unlikely that the UK economy is really such a basket case as to justify a relative underperformance of 30 per cent in the UK stock market compared with those of other major countries. In any case, the FTSE100 is heavy on multinationals with earnings all around the world. If the UK economy ceased to exist altogether there are some companies in the FTSE100 which could pretty well carry on as if nothing much had happened.
It all begs the question: is there some temporary aversion to UK shares which has left them the bargain of the century? Well, maybe. But then maybe not. It has to be said, surveying the global economy, that the performance of the FTSE100 looks a lot more logical than that of other indices. Economies have bounced back to some extent, but still there are deep rifts. Technology companies have some extremely well out of the pandemic – you couldn’t have devised a better string of events to boost the likes of Amazon and Netflix. But even then you have to be sceptical: if we are going to end up with mass unemployment all retail can be expected to take a hit, online or otherwise.
There is only one certainty when it comes to predicting the performance of markets: they will always defy attempts to predict them. Short of some natural disaster or political revolution centred on London, it is difficult to see how the current divergence in the performance of the UK and main global markets can carry on indefinitely. Sooner or later you might expect international investors to start saying: hey, there’s a dirt cheap little grey island down there where we could start thinking of putting just a bit of our money. But then again, they might equally well decide that all markets are over-valued.