FTSE 100 bounces back despite Covid to finish 14.3% up in 2021 | Stock markets

The FTSE 100 has recorded its best year since 2016, as UK stocks recovered from the pandemic shock of 2020.

London’s leading index of blue-chip shares rallied by 14.3% during 2021, a year after falling by the same percentage in its worst drop since the 2008 financial crisis. It closed at 7384 points on Friday, having started the year at 6460 points.

Stocks were lifted during the year by economic optimism as Covid-19 vaccines allowed economies to reopen, with stimulus packages from governments and central banks increasing growth. Investors largely shrugged off worries about inflation, supply chain disruption and coronavirus variants such as Omicron.

The more domestically focused FTSE 250 index gained 14.6% over 2021 to end the year at 23,480 points, having hit a record high of 24,353 in September. Many other stock markets also rose strongly through the year, with the MSCI World index of global equities gaining 17%.

Ashtead Group, an industrial equipment rental company, was the best-performing FTSE 100 stock. It rallied by 73%, after its revenues were boosted by the global economic rebound as major building sites reopened.

The aerospace group Meggitt surged 58% after a takeover approach from US rival Parker Hannifin. The deal is being scrutinised by competition authorities. The mining company Glencore rose by more than 65%, lifted by rallying commodity prices, while Royal Mail jumped 56% thanks to strong demand for parcel deliveries.

The speciality chemicals producer Croda gained 53%, after a record performance including producing ingredients used in Covid-19 vaccines.

Banks and oil companies also had strong years, but some of last year’s “pandemic winners” suffered, with Ocado falling 26%. IAG, British Airways’ parent company, fell 10% during 2021 owing to concerns that Omicron would delay a travel recovery.

London lagged behind some other major European indices, with France’s CAC soaring 20% and Italy’s FTSE MIB up 23%. The pan-European Stoxx 600 hit a series of record highs, lifted by technology firms and financial stocks. Luxury also did well, with LVMH Moët Hennessy Louis Vuitton’s shares firmly in fashion, up more than 40%.

Japan’s Nikkei 225 finished 2021 at its highest year-end level since 1989, rising almost 5%. It is still about 25% below its record peak 32 years ago, before the Japanese stock market bubble burst.

Wall Street led the way, lifted by large tech companies such as Alphabet, which surged by about 66%. The S&P 500 index of US stocks rallied by 27% over the year, achieving 70 record closing highs, as corporate profits were lifted by higher consumer spending, and cash flooded into equity funds.

“On the whole, 2021 has been an excellent year for equity returns,” says Richard Flax, the chief investment officer at digital wealth manager Moneyfarm.

“The second half of the year has seen a little more volatility than the first half – thanks largely to the Omicron variant causing uncertainty – but the likes of the US, Europe and Japan have seen strong growth.”

Despite this year’s recovery, the FTSE 100 is still 6.5% below its peak of 7903 points, which was set in May 2018, while the US, German and French markets all hit record highs this year.

Oil prices rebounded by about 50% during 2021, lifted by higher demand and cautious production increases by the Opec group and its allies. But gold dropped 4%, with the prospect of higher interest rates dampening the appeal of assets that do not provide income.