20th January 2016
The UK has officially entered a bear market as the FTSE 100 has fallen by more than 20% since its April high.
The sell-off comes on the back of the tumbling oil price and growing fears over the impact of the slowdown in China on the global economy.
A bear market is normally defined as when the market falls by 20% below its peak over the course of at least two months.
Further falls in the oil price and fears over slowing global growth have sent European markets down this morning.
In early trading London’s FTSE 100, Germany’s Dax and the Cac-40 in Paris were all down around 3% in early trading.
Rowan Dartington’s Guy Stephens says: “Many of the world’s investment markets are currently in a state of high alert with the VIX Index remaining elevated and at a similar level to last August, when Chinese growth concerns first erupted. However, of more note is that this measurement of ‘fear’ in the market is also at the same level that erupted when the Greek political process failed to return a government, leaving the parliament open to an anti-austerity and anti-EU radical left wing party, Syriza.
“Interestingly, despite all the shenanigans that followed, including the period when Grexit appeared inevitable last year, the VIX index has not been this high since then. Yet, if you were to read certain articles doing the rounds last week, you would think the end of the world was nigh with words such as ‘cataclysmic’ dominating the headlines.”
Stephens adds: “We believe that the focus and hysteria regarding Chinese economic growth is misplaced and fuelled partly by wishful thinking from the West but also intrigue and mystery due to the closed economy. Without clarity of data reporting, investors will speculate and without a fundamental valuation basis to ground that speculation, it can run wild on the upside and the downside as seen over the last ten years.
“The truth is somewhere in between but a financial crisis akin to 2008 is unlikely given that all the banks are state owned. If there was a Northern Rock or Lehman Brothers situation, we wouldn’t hear about it until well after it had been fixed, if at all.”