A STRONG performance by top UK shares meant investors ended the year in a cheerful mood.
The FTSE 100 Index finished close to a two-and-a-half-year high at 5899.9 – up by 9% over the year and overcoming a tempestuous 2010 that included the bail-outs of Greece and Ireland, the formation of a new coalition government and a major disaster involving BP, its biggest constituent and leading payer of dividends.
Weir Group, which sells pumps to the mining and oil industry and has valve operations at Elland, was the FTSE 100 Index’s biggest winner of the year – increasing its share price by almost one-and-a-half times.
The performance of the FTSE 250 Index was even more impressive as the second-tier, seen as more representative of the UK economy, rose by 24% as firms recovered following the recession.
But as investors brace themselves for 2011, the austerity drive facing the UK and global economies has raised doubts about whether markets can continue to grow at the pace of 2010.
Michael Hewson, an analyst at CMC Markets, said: “The FTSE 100 won’t get much above 6000, which is not much higher than where it is now – and if it does it will be due to Asian growth.
“This year was better than expected but it’s hard to see where the growth will come from.”
The index, which makes two-thirds of its profits overseas, has been driven over the past year by the growth of the Chinese economy, said Mr Hewson.
But there are mounting fears that China’s double-digit economic growth could slow after it ramped up interest rates by 0.25% on Christmas Day in an attempt to put the brakes on inflation, which currently stands at 5.1%.
A slowdown in the Chinese economy might cause commodity prices to fall – and that would have big ramifications for many blue-chip companies.
The FTSE’s growth over the past year has been largely driven by the strong performance of mining firms such as Antofagasta and Rio Tinto.
Disaster-struck BP saw its share price fall by over half before rallying to end the year within 70% of its 2010 peak.