View the article online at http://citywire.co.uk/money/article/a871383
FTSE tumbles as China fears spark market rout
FTSE 100 sheds more than 2.5% while global markets veer heavily into the red after China's stock market loses 7%.
Update: The FTSE 100 has tumbled along with global markets, as heavy falls in China's stock market sparked fears among investors, while dismal US manufacturing data added to the gloom.
The UK blue-chip index dropped 162 points, or 2.6%, to 6,080, while falls on US markets were just as heavy, with the Dow Jones dropping 2.6% and the S&P 500 down 2.2%.
Eurozone markets fared even worse. The German DAX 30 dropped 4.4%, the French CAC 40 was down 3%, Italy's FTSE MIB tumbled 2.9% and Spain's Ibex lost 2.7%.
That followed a 6.9% drop in the Shanghai Composite index, triggering a suspension of trading. The latest slump in China's market came as fresh data showed a sharp fall in factory activity, although Mark Dampier, head of investment research at Hargreaves Lansdown, said the imminent lifting of a short selling ban was likely to be the driving factor.
'It has far more to do with worries that major shareholders will reduce their positions after the ban of share sales and short selling,' he said.
'Today's stumble shows the dangers of meddling with free markets,' added Russ Mould, investment director at AJ Bell. 'Some are attributing the fall to the imminent expiry of a ban on share sales by large investors that was introduced in August after the summer rout. This echoes prior failed initiatives elsewhere and suggests the free markets are best left to sort out themselves.'
US data added to the gloom, with a second consecutive reading showing contraction in manufacturing. 'A second consecutive reading below 50 from the US manufacturing [purchasing managers' index] explains why the markets do not believe the Federal Reserve will raise interest rates very quickly this year, as monetary policy could already be too tight, thanks to the rising dollar,' said Mould.
Weak China data spells bleak open
(9:04) The FTSE 100 has endured a glum start to the new year, shedding more than 100 points after news of a fresh slump in Chinese factory activity reignited fears over the strength of the world's fastest-growing economy.
The UK blue-chip index fell 113 points, or 1.8%, to 6,128 while other global markets were also hit by China fears. The German DAX 30 slumped 3.5%, the French CAC 40 fell 2.2%, Spain's Ibex dropped 1.9% and Italy's FTSE MIB was down 2.2%.
Contraction of China's factory activity quickened in December, which marked the 10th straight month of declines. The news sent China's Shanghai Composite index 6.9% lower, prompting a suspension of trading.
'Understandably this hasn't been great news for the European markets on their first full day of new year trading,' said Connor Campbell, financial analyst at Spreadex. 'With copper collapsing by nearly 3% the FTSE immediately began to drown under the weight of its mining stocks.'
'Equity markets in general are likely to be volatile this year - we'd better get used to it,' added Matthew Sutherland, investment director for Asian equities at fund group Fidelity.
'It's important that investors don't panic on weak days, but continue to take a disciplined and calm approach to investing. This is particularly true with regard to China. Yes, China's growth is slowing, but the quality of that growth (in other words more consumption and less debt-fuelled investment) is far more important, and the difficulties are more than discounted in cheap valuations.'
Miners suffered the heaviest losses on the index, as the bad news from China, the world's top metals consumer, weighed. Fallers included:
- Anglo American (AAL) -7.1% at 278.3p;
- Glencore (GLEN) -5.7% at 85.3p;
- Antofagasta (ANTO) -4.5% at 448.3p;
- BHP Billiton (BLT) -3.4% at 734.4p;
- Rio Tinto (RIO) -3.3% at £19.14.
On the FTSE 250, the Fidelity China Special Situations (FCSS ) investment trust was among the heaviest fallers, down 3.7% at 137.9p, while small cap peer JPMorgan Chinese (JMC ) slumped 4.6% to 160.8p.
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