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The macroeconomic backdrop in 2022 is dominated by Russia versus Ukraine, rising inflation and interest rates, and challenges in the supply chain and labor market.
In the UK we also have the short-lived leadership of Liz Truss, increasing industrial action, and a bleak outlook for the domestic economy.
And yet there are some big risers in it London Stock Exchange, also a lot of falling. Let’s find out – and where the value is for investors in 2023.
index performance
First, how did the UK’s main index perform? Well, the big picture is the contrast between the blue-chip giants and their smaller families:
- FTSE 100: +1%
- FTSE 250: -20%
- FTSE SmallCap: -16%
- FTSE AIM: -32%
The FTSE 100 keeps its head above water with higher levels of international earnings than domestically focused smaller companies. Some of the biggest blue chips are also in recession-proof sectors.
Defense
The top FTSE 100 risers are defense companies BAE system (+61%). Of course, Western defense spending and demand for BAE products will increase due to Russia’s geopolitical invasion of Ukraine.
In the FTSE 250, QinetiQ (+34%) is another strong player in the defense sector.
Commodity
The conflict between Russia (one of the world’s largest oil and gas producers) and Ukraine (the ‘breadbasket of Europe’) has also caused energy and food prices to rise.
BP (+ 44%) and shell (+43%) achieved strong gains due to higher oil and gas prices. Giant Footsie Glencore (+47%) – a major producer and marketer of minerals, metals, energy and agricultural commodities – is another hot stock.
Meanwhile, the international energy services group chase (+97%) is a notable increase among small companies.
Finance
There was a mixed performance in the financial sector, but some good results in the region. Specialist insurance Beazley (+ 46%), who manage six Lloyd of London syndicate, is the best FTSE 100 performer in the financial sector.
Banks are generally doing well, with rising interest rates positive for profits. Harking returns to mention international, Asia/Africa-focused earnings Standard Chartered (+43%) is the best bank in Footsie.
In the FTSE 250, stocks from Bank of Georgia (+ 56%) is in demand, as well as from Investec (+35%) who get big profits from southern Africa.
Takeover offer
Not all major movements in stock prices are driven by sector themes. Educational publishing group Pearson (+53%) ranks second in the blue-chip risers board 2022. Sentiment for this stock has increased after rejecting a takeover offer at a premium price and delivering a strong trading performance.
Meanwhile, the group repaired the makeshift house Front (+37%) is now the subject of a favorable takeover.
Great people
Ocado (-63%) is the worst performer in the FTSE 100. Like many stocks that have grown in a low-inflation environment in recent years, the price is a heroic valuation of high cash flows over the next few years.
Faced with massive inflation in 2022, the net present value of these ‘two-birds-in-the-bush’ future cash flows declines, and the market lowers the stock’s price.
Another FTSE 100 victim of this phenomenon is focus on growth Scottish Mortgage Investment Trust (-46%) whose main holdings include the like Tesla.
Property
Shareholders of the big FTSE 100 housebuilders are also suffering in 2022. With the economy in decline, share prices are also falling. Taylor Wimpey (-42%), Barratt’s Development (-47%) and persimmon (-57%) was among the biggest decliners in the index.
Commercial properties are also frowned upon. All four FTSE 100 Real Estate Investment Trusts (REITs) experienced double dips. SECRET (-47%) is the worst.
Consumer cycle
The slumping economy and the cost-of-living crisis also hurt consumer cyclical stocks. The business is vulnerable when cash-strapped customers cut back on discretionary spending.
FTSE 100 retailer Next (-29%), owner of B&Q Kingfisher (-30%) and JD Sports Fashion (-42%) all fell from negative sentiment.
There have also been larger falls between consumer cycles outside the FTSE 100. For example, Wizz Air (-55%), cruise ship group Carnival (-58%) and ASOS (-79%). And don’t forget 100% wipe-outs like Joules and Made.Com – scratched from the scorecard since they collapsed into administration before the end of the year.
Looking forward
In times like these, I must remember that recessions and high inflation do not last forever. In addition, the market begins to price stocks for recovery often before the recovery emerges.
Market volatility may continue for some time. But I’m increasingly interested in some diluted growth stocks, out-of-favour REITs, and battered consumer cycles. What I’m most interested in is having a strong underlying business and a strong balance sheet.
On that note, I wish you a Happy New Year and good luck with your investments in 2023!
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