UK equities closed the year at an all-time high, putting the seal on a good year for the stock market, according to S&P Dow Jones.
According to the index provider's analysis, the S&P UK ended the year in clear lead with an 11.85% gain in the past 12 months. The S&P Europe 350, which consists of the largest 350 companies drawn from 16 developed European markets, closed the year with a 10.75% total return. The UK contributed the most with 2.23%, followed by France at 2.00% and Germany at 1.82%.
The FTSE 100, which tracks the largest 100 UK companies, hit an all-time record closing high on 29 December, with the main index of shares listed in London up 7.6% on last year at 7,687. The FTSE 350 also closed the year on a record high at 4,269.
These high valuations have raised fears the market could be heading for corrections in 2018. A 2017 survey of institutional investors by Natixis Investment Managers found 76% are concerned that depressed low rates have created asset bubbles.
At the same, volatility levels were surprisingly low during 2017 at a time when there has been a lot of political uncertainty, such as Brexit, US politics, and other geopolitical risks.
With volatility recording its lowest closing value on 18 December, S&P Dow Jones said: "2017 may well be remembered for being the year when risk barked but didn't bite".
The index provider found the best equity strategy of the year was enhanced value, while information technology led the sectors with 22.31%.
Meanwhile "going green got you into the black", with every single ethical, social and governance related index on its dashboard reporting gains in 2017, according to S&P Dow Jones.
Investment and defined benefit policy lead Caroline Escott acknowledged these concerns exist among pension schemes. She said: "UK equity prices are out of line with the underlying economic fundamentals and we are witnessing an asset bubble.
"As central banks around the world begin to think about unwinding their quantitative easing policies, there is a danger that the markets will react suddenly to any shift in approach. Pension schemes need to work with their advisers to ensure their investments are protected as far as possible, for instance through portfolio diversification and investing in asset classes where returns are uncorrelated to those from the rest of their portfolio."
But Kempen Capital Management head of investment strategy Nikesh Patel is confident that 2018 will be a good year. He said: "There have been no red flags so far, only a surge in inflation would be the warning sign needed to spoil the good mood for equity markets".
BlueBay Asset Management co-head of investment grade Mark Dowding said: "[2017 was a] Goldilocks in financial markets and it is hard to imagine the next 12 months being nearly as benign.
"Growth seems about ‘as good as it gets' pretty much everywhere (with the notable exception of the UK)".
On 2 January 2018, both the FTSE 100 and FTSE 350 hit new records at 7,696 and 4,281 only to slip back down to 7,629 and 4,251 on 3 January. While the S&P Europe 350 fell to 1,566 in the first couple of days of trading, it recovered to 1,588 by 4 January. At time of writing both the FTSE 100 FTSE 350 recovered, standing at 7,678 and 4,277, while S&P UK stood at 1,549.
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