Never mind the Eurozone crisis, UK double dip recession or the fiscal cliff – equity markets generally did well in 2012.

The apparently modest performance of the UK in 2012 stems from several factors.

• It was not a good year for the commodity-based multinationals, which form an increasingly significant part of the UK stock market. The oil and gas sector fell by 11.2% over 2012, while the basic materials sector registered a rise of just 1.9%.
• The more UK-centric businesses did much better; witness the performance of the FTSE 250, which measures the 250 companies below the top 100 – about 15% of the UK stock market. The FTSE 250 gained 22.5% in 2012, which explains why the broader FTSE All-Share Index out-performed the more widely quoted FTSE 100.
• On top of the index capital return, there was a useful flow of dividends. The market ended the year with an average dividend yield of around 3.6%. The UK remains one of the highest yielding of the major global stock markets.
• The value of sterling rose against most currencies over the year. For example, it was up 4.6% against the dollar, 3% against the Euro and 17.5% against the Yen. Adjust for this and the UK stock market’s relative performance looks much better.

11th January 2013