Ten years ago it didn’t exist. In 2017 it became the world’s most talked about financial instrument. Bitcoin’s rise from $960 (£720.13) at the start of the year to $16,500 as we hit the press has all the hallmarks of an investment mania – critics suggest that with no asset backing Bitcoin is simply attracting speculators betting on a higher price, the greater fool theory in crystal clarity. But no amount of negative commentary has dissuaded Bitcoin’s advocates, who argue that crypto-currencies represent a paradigm shift, and in particular the blockchain technology that underpins it. That may ultimately prove to be the case, but it does not follow that the current crop of crypto-currencies will be the eventual winner.
The mind-boggling return from Bitcoin has rather obscured the inflation of prices elsewhere on more mainstream financial markets, not least in the US tech sector. Led by the so-called FAANGS – Facebook, Apple, Amazon, Netflix and Google – US markets have powered to record after record, and a Cape ratio not seen since the dot-com boom. The FAANGs make up just over a tenth of the S&P 500, while a broader basket of tech stocks account for nearly a quarter of the US benchmark index, leading to worries that investors betting on the broader market now have overweight exposure to highly priced tech shares, and that any specific concerns over tech valuations could prompt a much broader sell-off.
Politics and markets have always been intertwined, but markets in 2017 have been particularly susceptible to the machinations in Westminster. And those machinations have kept everyone on their toes this year – good news for YouGov, whose polls proved on the money. As the year began, Labour’s electability went from bad to worse, with many of the party’s MP’s calling for the leader’s head after a dismal showing in local elections. One ill-conceived snap election later, and the possibility of a Jeremy Corbyn government has become a real possibility, and with it the chance of an economic programme that could see a return to the nationalisations of the 1970s. UK stocks are cheap not because of Brexit but because of the risk that Labour may win the next election.
If there’s one share that epitomises the current state of UK politics it’s Centrica. In a surprisingly interventionist move, the Conservatives have responded to widespread criticism of the energy industry by proposing price caps, in addition to regulatory initiatives aimed at making switching easier and pricing more transparent. Centrica has found itself the poster boy for the dysfunctional domestic energy market, its woes compounded by a customer exodus far worse than rivals like SSE, and there’s little on the horizon to offer any cheer in the New Year.
After its post-referendum battering, and the prospect of Brexit negotiations in which Britain seemingly held few cards, most expected another bad year for sterling and a sharp tick-up in inflation. In the end the pound recovered ground against the dollar, but a buoyant eurozone economy meant continued weakness against the single currency. Along with higher energy prices, this has meant inflation has remained persistently high, with only small consolation for savers in the form of a single half-point rate rise in November. With the economy weakening, rate setters will be keeping their fingers crossed that inflation starts to drop out of the system, as many have predicted, but savers shouldn’t expect much relief.
Before the 2016 referendum numerous economists predicted the UK would fall into recession as a consequence of the plebiscite. While that did not come to pass, UK growth has slowed markedly in 2017. The culprit? According to many economists, including the independent Office of Budgetary Responsibility, continuing poor productivity. UK output per hour worked has stagnated since the financial crisis as European rivals have recovered, and improving productivity is unsurprisingly at the heart of the recently announced industrial strategy, with funding outlined to improve infrastructure and boost R&D.
The UK’s obsession with bricks and mortar showed no signs of waning in 2017, even if house price growth began to soften, especially in London. The country’s chronic housing shortage has increasingly come under government scrutiny, with the November Budget dominated by plans to get Britain building again. The target: 300,000 homes a year by the mid-2020s, well in excess of the current output of 217,000. The government hopes to accelerate construction by unblocking the planning process and ensuring major housebuilders aren’t hoarding land, potentially bad news for the listed housebuilding sector, which many suspect of boosting profits through strategic land-banking and crowding out smaller builders, also now given extra support by the Budget. The sub-sector’s most stellar returns may already be behind it.
Despite the US withdrawal from the Paris Climate Accord, the prospect of an electric vehicle revolution accelerated towards reality in 2017, as major manufacturers rolled out new models and announced plans to expand electric ranges, and various governments revealed lofty ambitions to phase out petrol vehicles entirely. The trend reflects significant improvements in electric vehicle technology in terms of cost and performance, although a cynic may suggest that the inexorable rise of China’s electric car industry is a major driving force of western manufacturers’ strategic ambitions – over half a million electric passenger cars will be sold in the Middle Kingdom in 2017, and its original equipment manufacturers (OEMs) could soon set their sights on international markets, potentially bad news for early movers such as Tesla, which has seen its share price stutter as investors wake up to the prospect of increased competition.
