Monday saw the FTSE 100's third steep daily fall in April. What's scaring Mr Market?
In his epic poem The Waste Land, T S Eliot wrote "April is the cruellest month" and, so far this year, he's been spot-on.
Down goes the Footsie
The first three months of 2012 were a one-way ride for equity investors, as share prices rose almost across the board. However, since closing at 5,966 on 16 March, the blue-chip FTSE 100 index of elite British companies has taken a dive.
As I write, the Footsie stands at 5,648, down 124 points, or nearly 2.2%, on Friday's close. This is the third time in April that the UK's main market index has closed down 2% or more in a single day. The two previous falls of this magnitude were 2.2% on 10 April and 2.3% on 4 April.
At just after 4pm on Monday, these were the FTSE 100's 10 biggest fallers:
As you can see, this list of big fallers is dominated by mining companies and metal producers, which account for five of these 10 slumpers. Other companies also on this list include those with heavy exposure to consumer spending overseas, notably IAG (formerly British Airways) and clothing retailer Burberry.
There's hardly anything to report here, as just one share -- British Sky Broadcasting (LSE: BSB) -- is ahead as I write, up 6p (1%) to 680.5p.
What's going on?
Mr Market hasn't suddenly turned bearish (pessimistic). In fact, he's been worrying on and off for about a month. However, what sent investors rushing to the exits to sell today was the news that France could have its first Socialist prime minister for 17 years.
In the first round of the French presidential elections yesterday, Socialist challenger François Hollande had a narrow lead over centre-right incumbent Nicolas Sarkozy. If Hollande pips Sarkozy in the second round of voting on 6 May, then investors fear that he will ramp up France's social spending. Hence, renewed worries over France's budget deficit sent its bond prices sliding, with European shares soon following suit.
In addition, earlier news that China's go-go growth had slowed to a more mundane 8.1% cast clouds over future demand for natural resources from emerging markets. With China recording its slowest quarterly growth since the global financial crisis of 2007-09, this doesn't bode well for global growth.
This is only the beginning
For what it's worth, I've been very negative on the Footsie since it nearly closed at 6,000 over a month ago. Right now, world markets -- particularly European bond and equity markets -- are not being driven by fundamentals.
Instead of being lifted by modest price-to-earnings ratios and bumper dividends, equity markets are being driven by political instability. This is driving down bond prices and pushing up yields, notably in heavily indebted Italy and Spain, with shares following bond prices south.
Nevertheless, the worst is yet to come.
What about the impact of next month's general election in Greece? What about the €450 billion of debt Italy has to roll over this year? What about the near-12% yield on 10-year Portuguese bonds or the 6% Spain is being forced to pay? What about the strong possibility of another eurozone downturn?
In short, while the FTSE 100 has fallen by 320 points (over 5%) from its recent high, this could be just the start of a long and miserable 'summer of share slumps' for investors!
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