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This tumultuous year has been a roller coaster ride for UK markets, with dramatic losses across many assets. Bond indexes plummeted further than ever before, midcaps plummeted more than they did in 2008, and the combined market capitalization of London's primary listings was even overtaken by Paris, India, and Saudi Arabia! It's no surprise that this all added up to a loss of about £550 billion ($672 billion) of market value across indexes tracking locally-exposed shares and bonds.
At the tail end of September, the UK's Prime Minister Liz Truss and Chancellor of the Exchequer Kwasi Kwarteng dropped a bombshell with their so-called mini-budget. This news caused the pound to plummet to an all-time low against the dollar of $1.0350, and the currency is still on a downward spiral! The Bank of England had no choice but to respond to double-digit inflation by raising interest rates at the fastest rate in more than three decades, and UK benchmark 10-year yields skyrocketed over two percentage points this year - the most since 1994.
Despite all the commotion, strategists at Liberum Capital Ltd. remain optimistic about 2021. They think British midcaps will outperform large caps as inflation eases and the dollar weakens. The UK is facing a tougher cost-of-living crisis than other developed economies, due to increases in a household-energy price cap as well as shorter-term mortgage payments being more sensitive to rising central bank rates. But with the help of experts, investors can make some informed decisions about their portfolios in the coming year. Who knows, maybe the new year will bring some much-needed relief!
