24th August 2015
The FTSE 100 closed 5% down on Monday, after collapsing by as much as 6% at one point, as panic selling-gripped the market over fears on China’s slowing economy.
The UK’s blue-chip index has endured one of its prolonged losing streaks since its 1984 inception, with 10 consecutive falls and the worst one-time decline since 2003.
The FTSE 100 is now down by 15% since its brief April peak with Monday’s drop, wiping some £100bn off its value.
The turmoil was echoed worldwide with the US’s S&P 500 off by more than 2% in late-morning trading. Meanwhile the Dow Jones fell by over 1,000 points when it opened today, though it has since made back some of this ground. Elsewhere Shanghai shed 8.5%, while Hong Kong down 5.2%.
Laith Khalaf, senior analyst, Hargreaves Lansdown said: “China and commodities are still dominating proceedings, with oil and mining companies once again bearing the brunt of poor sentiment, though the banks aren’t far behind.
“It was just five months ago investors cheered as the Footsie broke through the 7,000 mark for the first time; it now looks like a very long climb back.”
The Times reported that the Chancellor, George Osborne speaking during a visit to Sweden, said he did not expect the slump in Chinese share prices to pose a threat to Europe’s economy.
He said: “I am reasonably confident, although I don’t think that we can be unaffected by what happens in China, I don’t think it’s going to cause immediate sharp problems in Europe.”
China recent bull rally, driven by retail investors came to halt earlier in the summer. According to Bloomberg, since its June 12 high, the Shanghai index has fallen 38% – which in turn has eroded more than $4 trillion. China are calling it ‘Black Monday’.
Reports show that the VIX index, commonly dubbed the Fear Index, soared to its highest level since January 2009 at one point during the day.
Adrian Lowcock, head of investing at AXA Wealth said: “The recent sell-off has turned into a rout today. In such times it is important to keep your head and remain focused. August can be a challenging month. With many professional investors away on holiday there are fewer transactions which can lead to bigger swings in the market than may happen normally.”
“Today’s sell-off across global equity markets is a sign of capitulation and while the drop is disconcerting, investors who stay focused on their long term goals and objectives will likely benefit as they are able to ignore the noise.”
Khalaf asserted that however bleak things may seem today, there are reasons to be positive. “A lower oil price will boost household budgets in the UK, Europe and the US, which should feed through into spending. The $70 dollar fall in the oil price over the last year puts $6 billion more into the pockets of oil consumers each day; a level of economic stimulus even central bankers would be proud to notch up,” he added.
“Furthermore as long as lower petrol prices are keeping inflation down, central banks in the UK and US are unlikely to raise interest rates, providing a supportive background for companies and consumers. This probably further extends the pain for savers, who can probably see that light at the end of the tunnel receding into the distance.”