FTSE 100 in 2022 - old guard regains ground as tech falters

Proactive Published 28/12/2022

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After the year the UK has had, how on earth is the FTSE 100 on course to end the year modestly in profit?

The year of Ukraine and the three unwise monkeys in number 10 Downing Street – speak no sense, hear no sense and see no sense – has battered the UK economy and yet the FTSE, at the time of writing loitering around 7,473, looks set to finish about 1.2% above its end-2021 level of 7,385.

A look at some of Footsie’s winners, starting with BAE Systems PLC (LSE:BA.), quickly explains why.

War. (Good god, y’all).

What is it good for?

Well, boosting the profits of defence companies, for one thing.

With the world becoming a more dangerous place since Russia invaded Ukraine, demand for BAE’s products and services is expected to rise – something that did not go unnoticed by investors, although just in case it did, BAE mentioned an “elevated threat environment” in a bullish mid-November trading update.

The shares were the best performers on the FTSE 100, rising 55.5% year-to-date. Throw in dividend returns as well and the gain is 60.2%.

Earlier this month, prime minister Rishi Sunak announced BAE, along with Rolls-Royce Holdings PLC (LSE:RR.) will be involved in developing the next-generation fighter jets with Italy and Japan, in a project to produce the successor to the Eurofighter Typhoon.

Investing in defence stocks is not to everyone’s taste; it’s not just the unpleasant business of producing products specifically designed to maim and kill, it’s also the whiff of corruption that seems to go with the territory, although in BAE’s case, its record is not bad, according to Transparency International, which rated the company’s commitment to fighting corruption as ‘high’.

Transparency International restricts its surveillance to the defence & security industries, which is probably just as well for Glencore PLC (LSE:GLEN), the mining conglomerate that received record fines for dodgy oil trading in November.

Cash in suitcases was ferried around by jetplanes in Africa, specifically to bribe officials in the oil and gas industries in South Sudan, Nigeria and elsewhere, the court heard, ahead of sentencing.

When the sentencing did come, a day later, the total payable in fines and confiscations was a chunky £280mln - some way shy of the maximum legally allowed, but a good deal more than the estimated £81mln in damage that the Serious Fraud Office estimated was done by Glencore’s behaviour.

Glencore also coughed up a further US$180mln into the Democratic Republic of Congo (DRC) to settle past and future corruption claims.

This includes activities in certain parts of its business that have been the subject of various investigations by, among others, the United States Department of Justice and the DRC's National Financial Intelligence Unit and Ministry of Justice.

That did not stop Glencore from being the year’s third best-performing blue-chip stock, with a gain of 52.9% and a total return (i.e. including dividends) of 56.3%.

Brokers have been queuing up to tip the stock to have a storming 2023, after the company revealed in October it was on track for a record trading performance in 2022.

Deutsche Bank and JP Morgan both named Glencore as their top pick in the mining sector for next year, with the whole sector expected to benefit from China’s agonisingly slow emergence from lockdown.

As we shiver in the bleak midwinter and try to keep warm by throwing the heating bill demand on the fire, it is small surprise that 2022 was a great year for the oil companies.

Shell rose 51% and BP 45%. Meanwhile, Centrica, the FTSE 100’s ninth-best performer, rose 35% as investors decided it had dodged a bullet in the government’s draft legislation for a windfall tax on electricity generators.

So much for the year’s noteworthy blue-chip winners. What of the losers?

Step forward – or backward – Ocado Group PLC (LSE:OCDO), the delivery technology firm that saw almost two-thirds of its value wiped out this year.

One of the reasons the FTSE 100 has fared well in comparison with the likes of the S&P 500 in the US is its almost total paucity of glamorous technology stocks.

With apologies to accountancy software firm Sage (down 12.5%), Ocado is the nearest thing the UK has to a newtech “jam tomorrow” company and while its demise pales into comparison with the likes of Tesla, Twitter and Facebook, it certainly fell sharply out of fashion.

The first year of Covid (2020) was good for the stock but the gloss was already coming off in 2021; 2022 saw Ocado Retail, the joint venture between Ocado and Marks and Spencer Group PLC (LSE:MKS), issue a brace of profit warnings as people regained the habit of going out to shop.

Meanwhile, Scottish Mortgage Investment Trust PLC (LSE:SMT), seen as a proxy for all things tech and biotech, was about as popular as Argentina’s World Cup victory was on the Falkland Islands.

The investment trust’s share price virtually halved, even though it has long since moved on from investing in “tech titans turned to trash” such as Facebook and Twitter, although it still has stakes in Tesla and Ocado.

Also on the skids were housebuilders, after what seems like several decades of government-sponsored good times.

Some of us are old enough to remember when a minimum lending rate (as it used to be called) of 3.5% would have been considered low but since the financial meltdown circa 2008, mortgage holders have got used to rates that are lower than a snake’s belly.

Those days are gone, resulting in the likes of Persimmon PLC (LSE:PSN), Barratt Developments PLC (LSE:BDEV) and Taylor Wimpey PLC (LSE:TW.) slumping 48%, 41% and 36% respectively.

One thing is for sure, though; politicians know that houseowners are more likely to vote than non-houseowners and as such, don’t be surprised to see some measures being introduced to shore up house prices (and housebuilders’ profits).