INVESTORS enjoyed the best growth in British equities since 1997 as the stock market benefited from the surge in takeover activity over the past financial year.

As the financial year ended yesterday, figures from Thomson Financial, the equity data provider, showed that the FTSE 100 index grew more than 21 per cent between April 1 last year and yesterday. This was on top of an increase of almost 11 per cent in the previous year and 19 per cent the year before.

The last time that the FTSE 100 price index made a more substantial gain was in 1997-98 financial year, when it rose by almost 40 per cent.

Analysts attributed the rise to a benign interest-rate environment and strong merger and acquisition (M&A) activity.

Justin Urquhart Stewart, a director of Seven Investment Management, said that the FTSE 350 was stricken by “merger mania”.

“Most companies have been involved in either mutter from the gutter or actual takeover action in the past year,” he said. “And if you look at the FTSE 250, it’s a cappuccino market — there’s so much froth on it, the real value is hard to find.”

Robert Parkes, of HSBC, said: “M&A activity has probably been one of the biggest facts fuelling growth, particularly because most buyers have been from outside the UK listed sector, bringing a 30 per cent premium.” In the past financial year, Telefónica, of Spain, bought O2, the mobile phone operator, and Saint-Gobain, the French buildings materials company, took over BPB, the plasterboard maker.

Dubai Ports World acquired P&O, the ports and ferries operator; Linde, of Germany, is buying BOC Group, the industrial gases company; and Nippon Sheet Glass, the Japanese company, acquired Pilkington, the glassmaker.

Mr Parkes said that the performance of the resources sector, which comprises 25 per cent of the stock market, had boosted the larger market, on the back of strong global growth and good commodity prices.

Times Recommends

• Minister in talks with Saudis to protect creditors
• Premier Inn hits back in £29-a-room row
• Bankers hit back at 'populist' bonus supertax