How Britain beat the world in 2011

While shares crashed worldwide last yeare, London was a relative safe haven for investors!

Last year was one of the most difficult on record for Britain, its people and businesses. 

Following the global financial crash of 2007/09, our economy has struggled to return to growth. Indeed, in the first three quarters of 2011, UK GDP (gross domestic product, our total national output) grew by just 0.5%, 0.1% and 0.6% respectively. 

Not doing so badly 

Despite these economic setbacks, Britain still has a few things to be grateful for. 

For example, unlike the US (and, very soon, France), UK government bonds -- known as Gilts -- are still rated AAA by credit-rating agencies. Thanks to this top rating, Britain can borrow money remarkably cheaply, paying just 2.05% a year to borrow for an entire decade. 

What's more, in spite of growing fears over slowing global growth and the euro-zone crisis, the UK stock market performed relatively well last year. In 2011, the London Stock Exchange's main index, the FTSE 100 (which tracks the value of 100 elite, blue-chip companies), slipped by 5.6%. The mid-market FTSE 250 index fared worse, down 12.6% in 2011. 

Britain beats Europe 

As you can see from the table below, UK-listed shares did much better than their European counterparts and some other foreign stocks in 2011: 

In 2011, the stock markets of Spain, Germany and France all fell roughly a sixth, down between 14% and 17%. To a greater or lesser degree, each was affected by the ongoing turmoil surrounding the future of the euro. 

The Japanese stock market (the world's third-largest) also fell by a sixth (17%) in 2011. It was hit particularly hard following the earthquake, tsunami and nuclear meltdown of 11 March. After this tragic natural disaster, the Nikkei 225 index fell by almost 18% in three days. 

Likewise, the Chinese stock market -- which grew rapidly in the Noughties to become the second-largest in the world -- fell steeply in 2011, down 22%. This was partly due to a slowdown of China's rapid growth rate, plus fears that its property bubble is set to burst. 

Italy's stock market fell by more than a quarter (26%) last year, with Italian banking shares crashing on fears over their solvency, given Italy's massive state borrowing of €1.9 trillion. 

Lastly, the Athens stock market crashed by more than three-fifths (61%) last year, as Greece struggled to secure sufficiently large EU bailouts to ensure its continued financial survival. 

America wins once more 

Across the Atlantic, the world's largest stock market easily managed to beat its rivals in 2011. 

Although the main S&P 500 index was almost exactly unchanged last year, the Dow Jones Industrial Average (which includes such corporate giants as Coca-Cola, General Electric, IBM and Microsoft) finished the year up 5.5%. Had it not been for its 12% rise in the fourth quarter (its biggest quarterly jump since 2003), the Dow Jones would have been down for the year. 

Despite the Dow's improvement, 2011 saw a huge range in share-price performances among its members. McDonald's was the Dow's star performer in 2011, up nearly a third (31%), while Bank of America shares crashed almost three-fifths (58%). 

Finishing this US round-up, the high-tech NASDAQ index -- which includes Apple, Google, Microsoft and other Internet giants -- closed 2011 down 1.8%. 

What next? 

In summary, the UK stock market did remarkably well in 2011, all things considered. Even so, blue-chip shares continue to display signs of value, with 15 big, FTSE 100 businesses paying yearly dividends to their shareholders of 5% or above. 

Then again, investors still have a lot to worry about this year, particularly the situation in the euro zone, plus slowing growth in China and other emerging-market economies. In addition, geopolitical instability (especially in Iran and North Korea) will make markets nervous, as will the US presidential election in November. 

Therefore, with so many global uncertainties, stock markets are unlikely to see any strong upward trends throughout 2012. Nevertheless, investors should continue to rummage around the stock market's bargain basement for this year's potential winners! 

More: Tax-free ISAs are great for investors | The absolute wrong way to invest in the stock market | The UK's best pension plan