The UK equity market has started the year with the same energy witnessed in the final quarter of 2004.
By the end of February the FTSE 100 had advanced by a respectable 3.5 per cent and regained the psychologically important 5,000 level for the first time since June 2002.
It has been hovering either side of the mark so far this month.
Though impressive, this was dwarfed by the stellar performance enjoyed by the market minnows.
In the same period, the FTSE Smaller Companies index grew by almost seven per cent whilst the Aim market achieved a massive 14 per cent growth in the two months. Historically regarded as the junior market, Aim has established itself as the new market of choice for stock market entrants. The current pipeline of new issues looks strong.
After a brief respite at the end of February, much of the momentum enjoyed at the start of the year has continued to push prices higher in March.
Growing confidence in the outlook for the global economy and renewed interest from private client investors are significant factors. However, the outlook is not without risks, in particular, raw material shortages, interest rates and currencies are at the forefront of investors' minds.
Freezing temperatures in the US and Europe have reignited supply fears for oil inventories. Coupled with generally firmer commodity markets, the price of oil has soared through $50 a barrel, establishing new four month highs.
The higher cost of oil and implications for global economic growth forecasts are compounding problems faced by UK manufacturers. Whilst a majority of companies are reporting an increasing ability to pass on rising energy and raw material prices this is not yet an industry wide phenomenon. On another front, recent currency movements are detrimental to UK competitiveness.
The US dollar has depreciated significantly and $2/£ now looks a real prospect. Worryingly, the euro has continued the marked reversal seen since the turn of the year.
The second short term factor for equity markets has been a notable shift in expectations of future interest rates. Published minutes of February's MPC meeting indicate a growing inclination towards an interest rate rise in the short term. Though the majority of the committee voted for rates to remain steady at 4.75 per cent, one dissenter argued for a 0.25 per cent rise to choke off any emerging inflationary pressures.
The MPC held steady again yesterday and appears reluctant to increase the cost of borrowing until a clearer picture emerges of consumer confidence. February's CBI report revealed evidence that persistent concern over house prices and record levels of consumer debt continues to restrain consumer spending. Easter will be the next real test for the UK high street.
Against the backdrop of a buoyant market it is unsurprising that February witnessed some significant share price gains for Midland firms.
Mitchells & Butlers continued its share buy-back programme but a subsequent six per cent increase in share price failed to dislodge Britannic Group from the top spot in the super league table.
Homeserve clinched third spot after the market endorsed the sale of its Doorman Services unit to Sweden's Assa Abloy for £6.6 million in cash. The divestment was in line with the group's stated strategy of disposing of its commercial operations to focus on insured repair services solutions to domestic customers through affinity partnerships.
In the medium-sized companies table, Birminghambased mail services provider, Business Post Group, moved into pole position following the announcement by industry regulator, Postcomm, that Royal Mail's 350 year monopoly of the UK postal market will end in January 2006, a year earlier than originally expected.
After a spectacular 20 per cent rise in the three months to January, commercial property developer A & J Mucklow paused for breath during February and consequently fell back into second place for the eleven-month period. Wyevale Garden Centres, flat on the month, maintained its grip on third place.
In the smaller shareleague the performance of the top three firms, Widney, Loades and FW Thorpe looks to be unassailable with only one month remaining. Astonbased Widney, the designer and manufacturer of telescopic slides and windows for specialist vehicles has seen a 207 per cent increase in share price in the eleven-month period.
In spite of strong month on month performances of Wolverhampton-based steel fabricator, Hill & Smith (up 16 per cent) and aerospace and turbo charger components manufacturer, Hampson (up 13 per cent), both failed to bridge the gulf between third placed FW Thorpe.
Other notable movements include a 68 per cent rise in Berkeley Berry Birch, enabling the Coventry-based provider of financial services to regain ground lost in December and January.
Shareleague monitors the performance of West Midlands plcs. Percentage figures are rounded up.
