Hundreds of billions were wiped off world’s financial markets today after Chinese shares had their worst day since 2007 – intensifying a stock market rout driven by fears about the world’s second-biggest economy.
The FTSE 100 had fallen almost 4.5% to 5,914 points by lunchtime, wiping more than £60bn off the index. It was the first time it had dropped below the 6,000 mark since early 2013, with almost all companies in the red.
The biggest fallers were mining companies, with Glencore, the giant commodities trader and miner, falling 8% and Anglo American and BHP Billiton each losing more than 7% of their value.
Germany’s Dax index fell more than almost 5%, dropping into bear market territory after losing 20% of its value since April. The French CAC index was also down almost 5% while in the US, the Dow fell by over 1000 points shortly after opening.
As the Shanghai Composite Index sank by nearly 9% – its biggest one-day drop since 2007 – even Xinhua, Beijing’s official news agency, admitted China was facing a “Black Monday”.
TwentyFour Asset Management CEO Mark Holman, said the falls seen in the US were bigger than in 2008.
“Global growth concerns have led commodities sharply lower which, in turn, have led emerging markets sharply lower which now has fed back into developed market stock indices with the Dow closing down 358 points on Thursday and by another 530 points on Friday,” said Holman.
“These two moves combined, shown on the scatter chart below, make the 2-day move in the Dow, in points terms, already bigger than what we saw in 2008 following the demise Lehman Bros. Naturally in percentage terms it is smaller, but when we look at today’s Dow opening which shows another decline of over 1000 points, and a two decline over 1500 points, this qualifies as a very big move on all metrics.”
Rupert Brindley, managing director, Global Pension Solutions and Advisory Group at J.P. Morgan Asset Management, said the falls had mixed consequences for UK pension schemes.
“Global growth concerns are dragging down bond yields in tandem with equities – a dangerous combination,” said Brindley.
“However, the sell-off in FTSE has been amplified by its exposure to commodity producers. UK pension schemes are naturally short of commodities by virtue of the inflation linkage of their liabilities. Under-hedged schemes should get some offsetting inflation relief if this decline is long-lasting.”
Others believed the sell-off had the potential to become one of the strongest contrarian buying opportunities on record.
Royal London Asset Management head of multi-asset Trevor Greetham said: “China’s stock market slide and some weaker manufacturing data have sparked a sharp sell-off in equity markets. Our composite investor sentiment indicator has signalled one of the strongest contrarian buy signals on record with a depressed reading comparable with the onset of the great financial crisis in 2007, the Lehman failure in 2008 and the worst point of the euro crisis in 2011.
“This suggests a strong bounce, especially if we get policy shifts to turn market sentiment around.”
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