Footsie maybe up 3% this year, but lots of shares are in the doldrums.
The FTSE 100 index is now up 3% in 2007. And, would you believe, it's all down to just two mining shares.
But the other side of the coin is that lots of stocks haven't done at all well this year, and are much cheaper now than at the end of 2006.
So if you've missed out on miners over the last ten months, don't worry. The market's giving you a cluster of chances to make money in 2008.
Against the background of interest rate rises, US sub-prime mortgage meltdowns, credit crunches, etc., UK shares have had plenty to deal with over the last few months. Though over 2007 as a whole, the FTSE 100 index of leading London-quoted shares is, perhaps surprisingly, now up 3%.
How so? Readers of the financial pages can't have failed to see news of mining giant BHP Billiton's
(LSE: BLT)
proposed bid for Rio Tinto
(LSE: RIO)
. Whilst you'll all have your own views -- mine, for what it's worth, being that this looks like a 'top of the cycle' bid -- the effect on the 'Footsie' has been quite dramatic.
Rio Tinto has more than doubled this year, adding 2% to the overall index level. What's more, BHP Billiton has soared 75%, tacking on a further 1%.
Arithmetically you could argue that without these two stocks, the market would only have been unchanged this year. Of course it's not quite that simple. But as fears over economic growth have intensified, look how many shares have been badly battered in 2007. If credit conditions ease, several of these could be amongst the better performers next year.
Rank Banks
Even excluding 87% plunger Northern Rock
(LSE: NRK)
, now in the 'gamblers only' category, banks have been seriously under the cosh in 2007 as US sub-prime losses have necessitated hefty write-offs.
Barclays
(LSE: BARC)
and HBOS
(LSE: HBOS)
, both down 26%, have done badly enough. Yet Royal Bank of Scotland
(LSE: RBS)
has managed to fare even worse with a 29% drop while Alliance & Leicester
(LSE: AL.)
has lost 38% of its end-2006 value.
Bank shares are unlikely to mount a serious rally until the full extent of the write-downs surfaces, but a high yield opportunity is starting to unfold.
Property Plunge
Next up come the housebuilders. Persimmon
(LSE: PSN)
is down over a third, Taylor Wimpey
(LSE: TW.)
has lost 46% of its value and Barratt Developments
(LSE: BDEV)
has more than halved. Market values have again diminished so much that the effect on the Footsie is now very small. But a window has opened up to buy into a sector that's starting to look cheap.
Over in commercial property, the story is similar. Stocks have now factored in a severe slump in building values. Hammerson
(LSE: HMSO)
has shrunk 35% while British Land
(LSE: BLND)
has been flattened with a 44% fall. Land Securities
(LSE: LAND)
, has today announced plans to split itself into three units in order to reverse its 32% decline this year.
Shares that have soured the market with profit warnings, in particular Tate & Lyle
(LSE: TATE)
which received a 46% caning, have been hit hard. As have companies earning a large proportion of their revenues in US dollars, like Wolseley
(LSE: WOS)
which has plumbed the depths, sinking 41%.
The latter probably requires a dollar rally to turn around its relative performance. It's hard to see that happening in the near future, but again a lot of bad news is built into the share price.
High Street Blues
Several retailers have borne the brunt of investor dislike after making cautious noises about the economic outlook. Kingfisher
(LSE: KGF)
has shed 25% and DSG International
(LSE: DSGI)
has fallen 37% as high street spending is squeezed between higher mortgage payments and rising fuel costs.
A turndown in interest rates is the key to unlocking an upturn in relative performance for both property and consumer stocks. Rising petrol and food prices have forced the Bank of England to stay its hand for now, and yesterday's Quarterly Inflation report is equivocal about when loan costs will be cut.
So the timing isn't going to be easy. It never is.
But eventually investors' attention will swing back to some old UK favourites.
That's when today's laggards could turn into tomorrow's leaders.
If you want to buy shares in some of today's laggards, open an account with The Motley Fool Sharedealing service. Our service enables you to buy shares quickly and cheaply, the commission is just 10 a trade.
Or if you use Motley Fool Sharebuilder, you only need pay commission of 1.50 on each purchase. Sharebuilder keeps the costs down by grouping all the orders together and purchasing the shares at fixed points during the month
