Investors lose appetite for buying into UK plc

After the initial post-pandemic boom, stock markets around the world have struggled this year under the pressure of soaring inflation, aggressive central banks and a looming recession.

The bulls in the City will tell you that the decline of London stocks is part of a global malaise, but it is hard to shake the feeling that investors are not much interested currently in owning UK plc.

Given the gloomy economic outlook facing the nation this winter, coupled with stubbornly high inflation and a poorly-received government plan, even some of the best-known British names have halved in value this year.

The 350 biggest companies listed in London are down by, on average, 11 per cent, although many have fared far worse. The falls have knocked hundreds of millions off the net worths of some of the country’s best known entrepreneurs, including Tim Steiner, Stephen Rubin and Tim Martin.

The sectors hit hardest by this year’s rout are generally those most exposed to the UK economy and the UK consumer, whose confidence has fallen to record lows in the summer.

Retailers

Arguably the least-loved sector of the London stock market this year has been retail. With households having to spend an extra £145 per week on essentials, according to a recent survey from KPMG, people have less money to spend on clothes, shoes and the like.

Some in the market are speculating that a number of the country’s retailers may well have to act over winter to shore up their balance sheets to see them through any recession.

Of London’s biggest companies, Asos, the online fashion retailer, has suffered the biggest fall in its share price this year. The stock, once loved by investors, has lost three quarters of its value in the year-to-date to trade at 595p. Only 18 months ago, those shares were changing hands for nearly £60.

JD Sports, the high street seller of tracksuits and trainers, has stumbled this year, putting a big dent in the pocket of Rubin, 84, and his family’s Pentland Group. Pentland owns 51.9 per cent of JD — a stake worth £2.7 billion or £3 billion less than at the start of the year, with the shares down 54 per cent since then to 100p.

The rout has not been confined to younger, trendier brands. Marks & Spencer, the 138-year-old high street stalwart, has fallen by 59 per cent this year to 95½p, where it was before scientists developed a coronavirus vaccine.

Even B&M, a discounter which some might have thought would benefit from a downturn, has not escaped the pain. Its shares are down 53 per cent in 2022 to 295½p, not helped by its founder and leader, Simon Arora, stepping down.

Travel and leisure

Travel and leisure companies have also been caught short by the cost of living crisis and tumbling consumer confidence. The troubles of the wider economy have ruined their post-pandemic bounceback plans. Few investors are betting on a prosperous period of trading for pubs, restaurants and airlines over the coming months.

Given its focus on Central and Eastern Europe, Wizz Air, the Hungarian airline, has also been buffeted by the conflict in Ukraine. The stock is down 62 per cent year-to-date at £16.03 and is headed for its worst annual showing since it floated in 2015.

Its travel peers have endured a torrid time as well. Easyjet, the budget carrier, has dropped 47 per cent to 292¾p and Carnival, the cruise ship operator, is down 47 per cent to 738¾p.

Pubs have been especially affected by this year’s events. From one side, energy bills and staff wages have jumped, while from the other its regulars are tightening their pursestrings.

A reflection of those troubles is the JD Wetherspoon share price, which is down 58 per cent in 2022 to 405½p and has left the chain’s founder and biggest shareholder, Tim Martin, £150 million or so out of pocket.

’Spoons is not alone with its struggles. Mitchells & Butlers, another pubs group, has retreated 55 per cent to 115p and C&C Group, which sells beers and ciders into pubs, has fallen 38 per cent to 144p.

Housebuilders

This year has been an extraordinary one for housebuilders. House prices keep hitting fresh highs and many of the developers are, if anything, trying to run down their order books as they struggle to build houses quickly enough to keep up with demand.

Every time one of the developers updates the market, City eyes are peeled for any sign that demand is falling. It is yet to really happen though, but still the shares have been hit hard.

Investors are adamant that the cost of living crisis, coupled with surging mortgage rates, especially over this past week, and record high prices means that both demand and prices must fall back.

Shares in Persimmon, the country’s biggest builder by stock market value, have fallen by 59 per cent this year to £11.75, their lowest level for eight years. Similarly, Barratt Development shares are at a six-year low of 323½p, having dropped by 57 per cent so far in 2022.

Technology

Technology stocks, especially sensitive to rising interest rates and bond yields, were selling off even before Russia shocked global markets and invaded Ukraine. Typically when bond yields rise, City analysts increase the discount rate that they use to calculate a company’s future cashflows. This change is particularly harmful to tech stocks, whose best and most profitable years are generally yet to come.

Tim Steiner has spent much of the past few years trying to convince investors that his Ocado is not an online supermarket but rather a technology company. He might wish now that he hadn’t.

Ocado, with a foot in both the retail and technology camps, is down 72 per cent year-to-date to 469¼p. Steiner’s 2.4 per cent stake was worth about £330 million on New Year’s Day. It is now valued at less than £100 million.

Molten Ventures, formerly known as Draper Esprit, is a big tech investor, backing the likes of Cazoo, the online car dealer, and Crowdcube, the crowdfunding platform. Like some of its investments, its shares have fallen sharply in 2022, down 73 per cent to 272¼p.

Moonpig, the online seller of greetings cards, made its debut on the London Stock Exchange to much fanfare in February 2021. Its shares were launched at 350p back then and, riding the stock market wave, got up close to 500p. However, they now sit at 153½p, having fallen by 59 per cent this year alone.

and the winners . . .

Not every stock has been a loser this year, although most of 2022’s outperformers would not find themselves sitting in an environmental, social and governance (ESG)-friendly portfolio.

As well as hurting equity markets, Russia’s invasion of Ukraine served to push up prices of oil, boosting the profits at some of London’s bigger producers of the black stuff.

As a consequence, many of them sit towards the top of the annual leaderboard. Shares in BP have risen by 31 per cent to 432p and hit their dearest for two years over summer, while Shell, London’s other supermajor, is up 38 per cent so far in 2022 to £22.42.

Other oil and gas stocks have also profited: Energean, which operates wells in the North Sea and across the Mediterranean, has rallied 54 per cent to £13.13 and Harbour Energy, the biggest North Sea oiler, is up 24 per cent to 439p.

The war in Ukraine has, perhaps unsurprisingly, also prompted investors to add more defence stocks to their portfolios amid the rise in geopolitical tensions.

BAE Systems, the fighter jet maker, has jumped 50 per cent to 825p, while QinetiQ, which specialises in bomb detection technology among other things, has gained 23 per cent to 329p, having scaled to record highs last month.