Financial crisis fears as Black Monday batters markets
- Credit: PA
Fears that an economic slowdown in China was starting to become intrenched triggered ructions in the financial markets as the FTSE 100 index plunged by nearly 5pc.
Equalling its worst one-day fall since the financial crisis, London's top flight was more than 6pc, or 400 points, lower yesterday during the session as mounting concerns about the state of China's economy spread like wildfire across the globe.
While the FTSE did achieve a small rally, pairing back some of the losses, it still closed down by 4.7pc, or 288.8 points – a loss of £74bn from the value of its constituent companies and matching the 4.7pc drop seen in September 2011.
The figures took the market into territory last seen in the dark days of the downturn. In March 2009, there was a single-day fall of 5.3pc while there were even bigger falls late in 2008, including an 8.8pc decline in October that year.
It also led to questions as to whether the governor of the Bank of England, Mark Carney, would further delay a rise in interest rates in the wake of slump, spelling further bad news for savers.
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But the low commodity prices would continue to provide a helping hand to consumers, according to Richard Larner – Norwich branch manager of investment specialists Hargreave Hale – with the cost of food shopping and filling up at the petrol pumps remaining low.
His reaction came as Norfolk business trading with China remained steadfast in the face of the market turmoil, claiming the Far Eastern powerhouse still presented significant opportunities for the Western companies looking to grow their businesses overseas.
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Investors began reacting to the latest stock market rout in China overnight. The Shanghai composite, down heavily in recent weeks, slipped by more than 8pc and has now lost all its gains for 2015 – despite attempts by Beijing to arrest the slump.
Markets in Europe took it as a cue for another bout of selling, before a steep opening fall of more than 6pc on Wall Street markets added to the pressure.
Global markets have been rocked in recent weeks by China's slowing economy and the depreciation of the yuan – as well as plunging commodity prices and fears over the timing of the next US interest rate hike.
The worries have seen the FTSE 100 officially enter 'correction' territory more than 10pc down from its all-time high of 7,104 in April.
The latest fears about China boiled over last week after a key manufacturing index for the country showed the sector's decline worsening, with performance at its lowest level in more than six years.
– Market analysis
Richard Larner, Norwich branch manager of investment specialists, Hargreave Hale said: 'Sometimes the events that upset the market come out of the blue. We are in August, which is the peak holiday period for the City, so we get lower trading volumes at this time of the year. If you have lower trading activity then liquidity dips in reaction to negative or positive news – it has a disproportionate impact. If this were normal times we would have more liquidity.
'But such a big step cannot be dismissed. On the other hand, China grows much faster than the Western economy and the disappointment of not achieving 8pc is seen as negative.'
As a result of the market shock, interest rates are now unlikely to rise as soon as people think, he added. 'The interest rate rise will probably be delayed.'
'My main message is that the market is rarely in the right place. When it reached 7,000 in March it was probably too high and it will come to point where it is too low. It is not an exact science.'
– View from Norfolk business
Norfolk businesses trading with China believe the country still remains a highly lucrative market – even if its best days are over.
Ben Stocks, chief executive of King's Lynn-based filtration company Porvair, said China's slowing economy had stiffened market competition, but had not stopped the Norfolk firm from seeking further growth.
Porvair– which makes specialist filtration and environmental products, some of which it exports from Germany into China – said Chinese businesses were reacting to the country's economic slowdown by trying to undercut its business on price in order to gain a greater market share. But he added: 'The smaller producers in China are having to fight harder to succeed, but it is still a huge sprawling market. While it has slowed, there is still plenty of opportunity there.
Meanwhile, Peter Roy, business development manager for Watton-based upmarket pet food company Nature's Menu, believes the scale of the Chinese market means the country it still presents lucrative opportunity for UK business.
'We supply Hong Kong and we are seeing significant growth in that market – albeit from smaller levels then we have in Europe – and it remains robust.'