2015 is a year that investors in Britain’s biggest companies won’t want to repeat for a long, long time, and it’s all down to crashing commodity prices.
At the time of writing, the FTSE 100, Britain’s blue chip share index dropped by a massive 457 points in 2015, the equivalent of nearly 7%.
That makes 2015 by far the worst year for the FTSE since the global financial crisis wreaked havoc with the markets in 2007 and 2008.
Until this year, shares in the FTSE 100 rose every year bar one since the end of the financial crisis. That loss came in 2011, during the worst of the European debt crisis, but even then shares fell by just over 3%.
With Britain’s economy showing solid growth, the government announcing well received plans to cut the budget deficit, and the pound performing pretty nicely, it might have been expected that UK stocks would pop this year.
But they didn’t, and there’s one key reason why the FTSE 100 had such a horror show: mining companies.
The state of the mining industry right now is pretty well documented.
The continuing brutal crash in the cost of commodities — which has seen many natural resources hit multi-year lows — coupled with several natural disasters, and major restructuring at numerous commodity firms has pushed the industry to the brink of collapse. That is also reflected in the way shares performed this year.
The price of oil has dropped to around $37 per barrel this year, a third of its value just two years ago, while industrial metals have been crushed and seen losses of more than 30% in 2015.
In November, Macquarie released a chart showing just how bad things are (bear in mind that most prices have fallen even further since the chart was published):
Struggling miners are a particular problem for the FTSE index as a large number of the world’s biggest commodity and mining firms are listed in London. In total, 17% of companies on the FTSE100 are in the oil and mining sectors.
If you look at major indices in other countries across the globe, the vast majority are in the black over the course of 2015. In the US, both the S&P 500 and the Nasdaq have gained, while Germany’s DAX and the Nikkei in Japan are both in positive territory for the year.
Miners get crushed
Of the worst performing stocks on the FTSE 100, the top four are all miners, and six of the top ten are involved in the commodity business, while another, engineering firm Rolls Royce, is directly impacted by commodity prices.
These are the FTSE100’s 10 worst performing stocks in 2015 (companies with commodity based businesses are in bold):
- Anglo American (down 74.7%)
- Glencore (down 69.2%)
- BHP Billiton (down 40.8%)
- Antofagasta Holdings (down 39%)
- Pearson (down 37.3%)
- Standard Chartered (down 37%)
- Rio Tinto (down 33.3%)
- Rolls Royce Holdings (down 33.2%)
- Aberdeen Asset Management (down 33.1%)
- Shell A and B shares (down 29.3% and 30.9%)
It isn’t exactly surprising to see Anglo American and Glencore top the list. In September and October Glencore hit headlines when it’s CEO told people the company was preparing for “armageddon,” while Anglo American was forced to perform a “radical” restructuring and cut nearly two thirds of its workforce.
With no end in sight for the commodities crash, especially when it comes to oil — Goldman Sachs predicts it could fall as far as $20 per barrel in the near future — you could be forgiven for thinking that 2016 could be another depressing year for the FTSE 100.
But investors don’t seem to think so. According to a poll from Interactive Investor, the vast majority expect the index to climb next year, with more than 26% saying that they think commodity stocks are the best bet for next year.
Although the blue-chip FTSE100 got a pummelling this year, things haven’t been all bad in the British markets. The FTSE 250 has performed nicely over the course of 2015, gaining as much as the FTSE 100 has lost. Elsewhere, the FTSE All Share index has fallen by around 4% over the course of 2015.