| This report covers the period from 16th June
to 30th September 1998, one of the most turbulent in stockmarket terms for many
years. The FTSE 100 Index over this time recorded a fall of 11.94% after having risen over
7.1% to an all-time high on 20th July and subsequently falling 17.8% within the
next 2 months.
This turmoil was caused by the knock-on effect of the economic crisis hitting Asia. The
fear is that the rest of the world could be pushed into recession as a result of the
sudden fall in demand for goods and services from the previously fast growing Tiger
economies. Stockmarket falls were not confined to the UK. The US and all of the European
markets also fell sharply although the magnitude was nothing compared with the collapses
in countries like Russia which has seen shares lose 90% of their value.
Investor confidence has consequently disappeared for the time being and money managers
are taking measures to reduce risk by increasing their cash and bond exposure and
significantly switching out of second line shares into the blue chips which offer greater
liquidity.
It is sometimes said that the FTSE 100 Index is not altogether representative of the UK
market as a whole despite the fact that it now accounts for 79% of British companies by
capitalisation. Critics argue that it is too narrow and that shares comprising the index
all perform in tandem with each other.
But looking at the differences in performance across the range of FTSE 100 stocks
during the period shows another picture of marked differences. The best performer in the
period Railtrack was up nearly 30% outperforming the worst, ICI, by 80%. Other good
performances were recorded by utility BG (up 22%) and more surprisingly a financial sector
stock, Alliance and Leicester (up 13%). Financials were one of the hardest hits sectors.
For example Amvescap, a relatively new entrant to the FTSE 100 Index was down a hefty 44%
and Barclays Bank was down 41% on emerging market debt worries. No sector escaped the pain
although the oil and extraction sector fared best with BP up 2% and RTZ up 3% posting
modest gains.
Changes in sector weightings 16th June 1998 to 30 September 1998.
| Sector |
16th June 1998 |
30th September 1998 |
% Change |
| Financials |
27.4% |
26.3% |
-1.1% |
| Services |
22.9% |
22.0% |
-0.9% |
| Utilities |
13.8% |
17.9% |
+4.1% |
| Consumer Goods |
18.2% |
17.5% |
-0.7% |
| Mineral Extraction |
10.4% |
10.6% |
+0.2% |
| General Industrial |
7.3% |
5.6% |
-1.7% |
New entrants to the FTSE 100 Index over the period were numerous and
have significantly changed the whole structure of the sector weightings, reducing General
Industrials at increasing Utilities which have moved 3rd largest. Banks have
taken the brunt of the market fall and hence the Financials sector lost over 1% despite
the introduction of Allied Zurich (1% of the Index) which was the largest single addition
to the Index in the period. This was the result of Allied Dunbar and Zurich Life being
merged as part of a major rationalisation of BAT’s extensive financial services
interests.
Others to be added to the Britain’s top 100 list were Southern Electric which with
Colt Telecom, Securicor and Telewest boosted the Utilities sector. Sema, Stagecoach and
WPP were also added and increased the Services sector by nearly 1%.
The companies pushed out of the Index were Rank, Next, LASMO, Enterprise Oil, Wolseley,
RMC, British Steel, and Blue Circle Cement. |
