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FTSE Dragged Into Bear Market

Published: 21st January 2016 08:30 AM  |   Last Updated: 21st January 2016 08:30 AM   |  A+A-

LONDON: UK shares slumped into a bear market yesterday (Wednesday) as oil resumed its slide and fears of a China-led global economic slowdown continued to haunt investors.

Britain's biggest companies saw tens of billions of pounds wiped off their value as the FTSE 100 fell 203.22 points, or 3.46pc, to 5,673.58 - the same level it closed at a decade ago. The drop meant the index has now fallen 20pc from its last high, in April 2015, when it traded at 7,103.98.

Firms lost more than pounds 52bn as traders spent a second day reflecting on the International Monetary Fund (IMF) decision to downgrade its global growth forecast for this year and the International Energy Agency (IEA) warning the oil market "could drown" in oversupply.

Global shares slipped to a two-and-a-half-year low, as the CAC in Paris dropped 3.5pc and the German DAX fell 2.8pc. The Dow Jones Industrial Average lost more than 400 points moments after the opening bell sounded on Wall Street.

Chris Beauchamp, an analyst at IG, said: "FTSE bears have been enjoying themselves.

"The UK market has not been alone, as Europe and now the US join in with the panic of January 2016.

"Bond yields are heading lower too as investors shun risky assets and stash their money in any safe place going."

The drop in the FTSE came a day after it enjoyed its biggest daily gain this year.

However, hopes of further economic stimulus from China, which prompted Monday's rally, were quickly quashed as Asian markets plunged back into the red as oil prices tumbled to 13-year lows once again.

The price of Brent crude dropped to an intraday low of $27.10 a barrel yesterday.

David Buik, of Panmure Gordon, said: "After a brief unsustainable rally, a reality check was staring traders and analysts in the face."

"With so many imponderables relating to the Chinese economy, global growth, interest rate uncertainty, the threat of deflation leading to cut margins and falling profits, no one can be that surprised at the vehemence or strength of the sell-off."

Currencies were also hit by the oil price crash.

Russia's rouble has collapsed to near 80.02 roubles to the dollar, its weakest level since late 2014, when the currency capitulated in the early months of the oil price fall.

Meanwhile, the MSCI 23-country Emerging Markets index nose-dived to a six-and-a-half-year low, just a day after the IMF said it expected global growth to hit just 3.4pc in 2016 and 3.6pc in 2017 - reductions of 0.2pc a year.

The warning from the IEA, the world's energy watchdog, about the oil market also deterred investors from commodity funds.

Copper neared levels last seen in May 2009 and UK-listed miners descended into chaos, slumping to 13-year lows in intraday trade in the face of collapsing commodity prices.

Glencore and Anglo American were nursing hefty losses of between 7pc and 10pc, while oil majors lost around 6pc.

Gold emerged as the sole beneficiary of the latest sell-off, which has persistently wreaked havoc on financial markets since the beginning of the year.

Gold prices hit a one-week high of $1,099.30 as the precious metal reclaimed its safe-haven status.

Lukman Otunga, an analyst at

ForexTime, said market volatility had "granted a false lifeline to gold bulls, who have found it noticeable difficult to break above the psychological $1,110 resistance".

Hedge funds have also felt the market pressure recently as Hedge Fund Research data showed that customers pulled out more money than they invested in the final three months of 2015. It marked the first quarter of outflows from the industry since the height of the eurozone crisis in 2011.

With some hedge funds suffering heavy losses on economic bets and stock-picking gone awry in volatile markets, investors withdrew a net $1.5bn (pounds 1.1bn) during the quarter.

The average hedge fund lost 1pc during the year, only the fourth year of decline since the index began in 1990.

The FTSE isn't the first global index to claim the unwanted accolade of a 20pc fall in value. Japan, China, Germany, France, Canada, Europe's Stoxx 600 and the FTSE All-World index have all now technically entered bear market territory.

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