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European shares set for biggest annual fall

At 1440 GMT on the last trading day of 2008, the FTSEurofirst 300 index of top European shares was up 1.1 percent at 833.13 points. It has slumped 45 percent this year after gaining 1.6 percent last year and 16 percent in 2006.

Britain’s FTSE 100 recorded its largest annual drop since its launch in 1984, while France’s benchmark index CAC-40 fell 43 percent, the biggest slump in its 20-year history. Germany’s DAX closed 40.4 percent down for the year.

“It has been a dramatic year in so many senses, very bad before September and became catastrophic thereafter. The problem spread out from something which was predominantly confined to financials to the broader markets and the broader economy,” said Jonathan Lawlor, head of European research at Fox-Pitt, Kelton.

“In terms of outlook for 2009, our view is that the central banks and the regulatory authorities are going to do what is necessary to avoid a deflationary onset. But clearly the first quarter is going to contain a lot of continued trauma.”

French-Belgian lender Dexia was the top loser on the CAC index in 2008, plummeting 81.4 percent, followed by struggling car markers Renault, down 80.9 percent, and Peugeot that fell 76.6 percent, as signs of a deep economic downturn sent global equities reeling.

The DJ Stoxx basic resources index, home of Europe’s biggest mining companies, was the worst hit in 2008, sinking 64.9 percent, closely followed by the DJ Stoxx banking index, down 64.8 percent, while the best relative performer among sectors was the DJ Stoxx health care, down 18.8 percent in 2008.

On Wednesday, banks, which had a disastrous 2008 with many seeking government bailouts, added most points to the European index, with Barclays up 3 percent, UBS rising 2.7 percent, Standard Chartered gaining 4.9 percent and Royal Bank of Scotland up 2.5 percent.

Thin trading

Trading volume remained thin as just a handful of bourses were open in a shortened session ahead of the New Year break. A number of markets such as Germany, Austria, Denmark, Finland, Norway, Sweden, Italy, Spain, Switzerland and Japan were closed.

“If there’s any optimism, it’s on the basis that stock markets recover in recessions,” said Justin Urquhart Stewart, director at Seven Investment Management.

“Last year we were so optimistic, that we were fooling ourselves. It’s now gone too far the other way. We’ve discounted a huge amount of bad news.”

Credit Suisse said it will sell a sizeable chunk of its fund management arm it considers as subscale to Aberdeen Asset Management at a loss, making Aberdeen the largest listed UK fund company. Aberdeen shares surged 14.6 percent, while Credit Suisse was up 2.2 percent.

Defensive pharmaceuticals shares rose. GlaxoSmithKline was up 2 percent, while AstraZeneca rose 2.2 percent, taking its gain for the year to about 30 percent, making it one of the best performers in 2008.

“At least we’re ending the year on an upbeat note,” said Mike Lenhoff, chief strategist and head of research, at Brewin Dolphin. “And I think that’s the way we will start 2009. We’ve been through a year that has been unrewarding, in every aspect.

“I think we’ll move ahead a bit in the new year, and then stabilise for a while. Global policymakers are doing their upmost to ensure the recession doesn’t degenerate into a deflationary malaise.”