UK stocks join world's losers with 10 per cent fall on year

Uk equities have had their worst year since 1994, after dramatic falls in telecoms stocks resulted in only the third annual decline in the FTSE 100's 16-year history.

Uk equities have had their worst year since 1994, after dramatic falls in telecoms stocks resulted in only the third annual decline in the FTSE 100's 16-year history.

The index of the UK's biggest companies yesterday closed at 6,222.5, down 10.2 per cent on its 1999 close. That had been a record high, thanks to the boom in technology and telecoms stocks. This year's slide wrong-footed the City's major investment houses, all of which had predicted further gains. The FTSE All-Share, which is less exposed to the heavyweight telecoms stocks, was off 8 per cent over 2000.

The telecoms sector has lost 40 per cent of its value this year. Vodafone, the UK's biggest company, tumbled 20 per cent as the outlook for global growth clouded, while BT lost 62 per cent of its value as investors questioned its strategic direction. A host of alternative carriers found themselves unable to justify the giddy ratings at which they had traded during the tech bubble.

The UK's techMARK 100 has fallen by a third this year, mirroring the performance of the Nasdaq. The London Stock Exchange's AIM market for growth companies, which had been the world's best performing market in 1999, ended down 25 per cent.

Mike Young, head of European strategy at Goldman Sachs, said New Economy investors had lost confidence in the spring and were now reeling from earnings downgrades. "We had reached the position where the valuation differential between these stocks and the Old Economy was such that anybody looking at the market couldn't bring themselves to buy," he said.

Fund managers have focused on signs of a global economic slowdown that will crimp business spending on technology next year and limit telecoms sector investment across the globe.

Emerging market companies are seen as particularly at risk, and have suffered some of the worst performances of any equities markets this year. The Korean stock market has lost half its value, with Taiwan and Thailand also suffering. Japan's Nikkei index had its worst year in a decade.

The exception has been China, which has priced in the potential benefits of further economic liberalisation and seen its two "B" share markets, which are open to foreign investors, rise by 136 per cent and 63 per cent.

European markets to have bucked the downward trend this year include Norway, where the heavily weighted Norsk Hydro has benefitted from a high oil price, and Switzerland, which is dominated by relatively defensive stocks, such as consumer staples, and financials.