Investing January 9, 2002

World Equities Languish in 2001

January 9, 2002 (PLANSPONSOR.com) - Despite cutting the interest rate aggressively, the global central banks failed to prop up the world equity market in 2001, which lost 17% in US dollar terms as the US and Japan battled with recession simultaneously and markets in Europe also slowed, according to data from global index provider FTSE.
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Regional Report

As in the US, the UK equity market suffered its second successive slump in 2001, the first since 1973-74. All the main indices fell for the year, with the FTSE 100 index falling 16%. The downturn in both economies dragged Europe down in their wakes.

The Asia Pacific equity markets had a distinctly mixed year. The FTSE All-World Asia Pacific index fell 23% in dollar terms. But if the Tokyo market’s 30% fall is excluded, the decline was only 6%.

Despite the downturn in the business cycle in the US and the events of September 11, the US was one of the better performing markets in the region during the year. Argentina was the region’s worst performer, spending the year struggling to stave off default and devaluation. The year ended with acceptance of default, a flurry of presidents, and an aborted plan for a new currency.

Despite susceptibility to contagion, Mexico gained 15% and Peru, the region’s best performer, increased by 36%, rebounding following the ousting of President Fujimori in 2000.

Substantial Losses

The year’s lackluster economic growth has translated to disappointing corporate profits, and poor returns across most markets. In US dollar terms, 2001’s worst performers were:

  • Egypt, which fell by 39.26%, weighed down as conflict in the Middle East and economic woes weighed down on the Egyptian pound,
  • Finland, which dropped by 38.23%, hampered by Nokia, which has a high weighting, as sales for handheld phones slowed, and
  • Greece, which fell by 32.5% in the year that it moved from emerging to developed market status

Significant Wins

Despite overall weakness in global markets, some countries still managed stellar returns. Among the gainers,

  • Russia increased by 48.46%, benefiting from an uptick in the economy,
  • Korea gained 39.73%, and
  • China, insulated from the global downturn, grew by 27.99%,

Sector Bets

Old economy stocks outperformed their newer rivals, despite a rebound in technology, media and telecommunications stocks at the close of the year. In 2001, the top performing sectors were:

  • Mining, where stocks rose by 10.74%,
  • General Retailers, which saw a 10.52% increase, and
  • Packaging, up 8.43%

In comparison, the worst performing sectors were

  • Gas Distribution, down 45.75%, dragged down by Enron, 
  • IT hardware, which lost 39.08%, pulled lower by weak demand, and
  • Telecommunication Services, which, grappling with overcapacity, lost 25.32%.

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