ADVFN, where will the Shareprice go now (part II)..

Equities see their best year since 2003

By Christopher Brown-Humes, Neil Dennis and Chris Flood in London

Published: December 29 2006 19:09 | Last updated: December 29 2006 19:09

Global equities rounded off their best year since 2003 this week as a healthy appetite for risk and strong liquidity propelled US, European and most Asian markets to double-digit gains in 2006.

The Dow Jones Industrial Average hit a record this week and was 16.7 per cent higher on the year at midday on Friday. In Europe, the FTSE Eurofirst 300 gained 16.3 per cent over the year – almost 30 per cent in dollar terms – finishing close to a five-and-a-half-year high at 1,483.47. The Nikkei 225 Average in Japan rounded off its fourth consecutive year of gains, and longest bull run since the late 1980s, with a 6.9 per cent rise to 17,225.83.

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“It’s been a staggering recovery from the sharp falls seen in May and June,” said one trader, referring to the second-quarter market slump, which was driven by inflation and growth fears.

The FTSE All-World index, which fell below its January starting point in June, ended the year 20 per cent higher in dollar terms. The emerging markets component of the All-World index surged 30 per cent, thanks largely to the BRICs countries – Brazil, Russia, India and China.

China was the best performer, with the FTSE China index up 94 per cent in dollar terms, as the government lifted a ban on new listings and introduced key reforms giving foreign investors greater access to mainland markets. Chinese initial public offerings totalled a record $50bn.

Russia, which floated energy giant Rosneft for $11bn this year, was also in the top-10 global gainers, rising nearly 60 per cent, while Brazil’s Bovespa climbed 32.9 per cent and India’s Sensex 46.7 per cent.

Andrew Milligan, head of global strategy at Standard Life Investments, said a key reason for the strong performance of global equities was that “corporate earnings have surprised by their robustness”.

Georgina Taylor, European portfolio strategist at Goldman Sachs, said markets had also been driven up by the absence of a widely expected slowdown in global economic growth.

The second-half recovery was supported by the decision of the US Federal Reserve to end two years of interest rate rises in August, and by a fall in oil prices.