We wake this morning to the news that Asia stock markets have fallen significantly overnight, and holding our breath to see what will happen when European markets open this morning and the US Dow Jones later today.
Overnight Japan’s Nikkei 225 index fell 3.6%, whilst markets in South Korea’s lost 6.1%, and in Australia 2.1%.
This comes on the back of yesterday’s falls on the US Dow Jones which was down by 5.6%, and a 3.39% reduction of the FTSE 100; all 18 markets in western Europe fell yesterday.
Louise Cooper, an analyst at BGC Partners, said: “Equity markets are just dropping through the floor. Normally you would expect to see some kind of relief rally as bottom-fishers come in looking for a bargain, but people are just terrified.”
The falls have come on the back of Standard & Poor’s decision to downgrade American debt from its cherished triple AAA status and on fears that the US and wider global economy is heading back into recession.
Add in continued fears that the level of debt in the US and Europe is unsustainable which over time will hit growth in both economies and corporate profits and you have a vicious cocktail to which world markets are reacting badly.
“What’s rocking the market is a growth scare,” said Kathleen Gaffney of Loomis Sayles.
She said investors were concerned about “how Europe and the US are going to work their way out of a high debt burden” if the global economy slows.
FTSE 100 hit
Closer to home a further £46 billion was wiped off the value of UK companies yesterday. Since 29th July, when this latest crisis started, the FTSE 100 has lost 13.7%, equating to £210 billion in value.
Yesterday’s falls were the fourth day in a row where the FTSE has dropped by more than 100 points, the first time in history such losses have been seen for so long.
The FTSE 250, which is often seen as a better gauge of UK economic activity as a high proportion of the profits of FTSE 100 companies are earned overseas, had an ever worse day. It fell by 4.4%, extending its run of losses to nine consecutive days.
The FTSE 250 has fallen by 15.3% since July 27th, close to the 20% barrier which qualifies as a ‘bear’ market’.
As fear engulfed the markets, investors and traders switched from equities to perceived safe havens.
In its seemingly relentless rise in value Gold hit another record high, climbing 4.2% to $1,721 an ounce. On the currency markets the Japanese yen and the Swiss franc strengthened despite dramatic currency interventions by the central banks of both countries last week.
Despite losing its AAA credit rating last week US government debt was in greater demand as investors ignored the downgrade; US borrowing costs on 10-year bonds fell 0.2% to 2.354%.
The scale of the losses seen in the past few days will undoubtedly make Individual investors will feel nervous.
With inflation rising and savings interest rates so poor many investors have recently entered the equity markets in the hope of getting a better return; anyone entering the market over the past few weeks are likely to be sitting on significant losses.
Experts have warned about the dangers of pulling out of the equity markets when prices are still falling. Most experts agree that if an investor does not need access to their capital they should try and ride out the current storm and wait for markets to cover.