Global sell-off sends stocks into bear territory

STOCK market panic around the world sent global equity markets to their lowest levels in three years as the FTSE 100 and Japan’s Nikkei crashed into bear markets.

The falling oil price and Tuesday’s IMF downgrade of global growth led to what one analyst described as a ‘toxic cocktail’ dragging world markets further into the red.

Bear markets – a drop of more than 20pc from the recent peak – were declared for the FTSE 100 (down 203.22 points to 5673.58) and Japan’s Nikkei. The FTSE 100 has seen £146.7bn wiped off its value since the start of the year.

This is the first bear market for the FTSE since 2008 in the depths of the Great Recession.

The markets massacre hit stocks across Europe with Italy’s banking sector among the worst affected.

Shares in the world’s oldest bank, Italy’s Banca Monte dei Paschi di Siena, dived more than 22pc.

The All Country World Index MSCI fell to its lowest level since July 2013. If its fall continues for the rest of January it would be the worst monthly loss since October 2008, the month after Lehman Brothers went bankrupt.

Comments on Tuesday from the International Energy Agency that the oil market ‘could drown in oversupply’ spooked investors.

Brent crude fell another 5.5pc to $27.19 and US crude fell more than 7pc to $26.3 – its lowest since 2003.

Michael Hewson, chief market analyst at financial spreadbetting firm CMC Markets said: ‘Increasing concerns that falling oil prices could contribute to significant numbers of bankruptcies in the US oil and gas sector aren’t helping sentiment amidst concerns of significant loan losses for US banks.’

The rout spread from Europe, to the US. Wall Street was in the red by the time London’s stock market closed. The S&P 500 has fallen 8pc this year, losing more than £1trillion, according to Reuters, and it fell nearly 3pc yesterday – close to its October 2014 low.

The volatility index, or VIX, which is known as the market’s ‘fear gauge’ as it measures the expected volatility in stocks over the next 30 days, jumped 11pc yesterday. The traditional safe haven of gold rose more than 1pc to more than $1100 an ounce.

David Buik, market commentator at broker Panmure Gordon & Co described the City of London with ‘blood running down Threadneedle Street and Canary Wharf’. He said: ‘I believe that this correction, though very painful, is very healthy and overdue.’

However experts at consultancy Capital Economics disagree with John Higgins, chief markets economist, saying: ‘Despite the prevailing gloom... we think global growth is likely to pick up from 2.5pc last year to around 3pc in both 2016 and 2017.’

The firm believes growth in China will rebound as commodity prices recover.