Another Big Fall For The Footsie

Published in Investing on 23 April 2012

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.

Today's slumpers

At just after 4pm on Monday, these were the FTSE 100's 10 biggest fallers:

CompanyPriceChange (%)
Old Mutual (LSE: OML)146-14.1
International Consolidated Airlines (LSE: IAG)162-5.7
Burberry Group (LSE: BRBY)1,415-5.4
Vedanta Resources (LSE: VED)1,170-5.4
Fresnillo (LSE: FRES)1,539-5.7
Hargreaves Lansdown (LSE: HL)495-5.1
Prudential (LSE: PRU)725-5.0
Rio Tinto (LSE: RIO)3,373-4.9
Eurasian Natural Resources (LSE: ENRC)537-4.7
Johnson Matthey (LSE: JMAT)2,259-4.7

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.

Today's jumpers

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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Chinga1 23 Apr 2012 , 4:59pm

"Summer of slumps" miserable?

Far from it! Hold on to your cash and wait for the next buying opportunity. For long-term holders building up retirement pots a weak FTSE is great news.

Mark878 23 Apr 2012 , 6:41pm

A few more articles like this and I'll pile in with this years ISA allowance.

mcturra2000 23 Apr 2012 , 7:21pm

"growth had slowed to a more mundane 8.1%"

How much growth do you want, you greedy gannet?

FWIW, Ken Fisher is expecting a big up year for 2012. He called 2011 "the pause that refreshes".

I'm just joshing you about the gannet thing, BTW. No offence intended. Peace.

diddyda 23 Apr 2012 , 8:43pm

As always the problem can be summed up in two words, 'The Euro'.

Whether it is political instability, budget problems, sovereign debt, over-regulation or unaccountable bureaucrats the root of the trouble can usually be traced back to Brussels.

The wheels are gradually coming off the worlds largest gravy-train and I am afraid the collateral damage when it finally hits the buffers will be huge. No doubt the fat-cats will escape the carnage with large golden-parachutes leaving the 'L'homme dans la rue' to reap the whirlwind.

Tin hats all round, I'll afraid for a few months more.

UrbanDreamer 24 Apr 2012 , 8:51am

I wish that I was as confident as this article. Placing a spread bet on the FTSE to fall is dead easy.

The author seems certain that I would make money doing so. As I said, I am less certain.

DirtyDollie 24 Apr 2012 , 10:43am

Am I missing something? China has long been the source of worry that its growth is so hot that it will eventually crash, so the government was trying to slow growth to something more manageable. Now that it has slowed a bit it is a bad thing?

Which is it?!

tru2me 24 Apr 2012 , 11:05am

Cliff you forgot to mention, the Dutch prime minister handing in his notice.
Eurozone or worrizone?

richjfool 24 Apr 2012 , 12:48pm

Maybe some good buying opportunities there then.

CunningCliff 24 Apr 2012 , 2:43pm

Yes, ram59, the entire Dutch government resigned yesterday, unable to balance its budget problems. Merely the first of many similar problems, I fear...


andrew97d 24 Apr 2012 , 3:42pm

The Dutch government resigned because Geert Wilders freedom party pulled out of their coalition because he didn't to be blamed for the austerity measures that they need to implement.

Meanwhile we will have to wait until May 2015 to consign the LibDems to the dustbin of political history.

OsbieFeel 24 Apr 2012 , 9:52pm

Ooh, bit of politics! (As Ben Elton used to say, when being right-on was considered a valid substitute for being funny.)

goodlifer 24 Apr 2012 , 10:36pm

"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!."

Dream on.

The only times Footsie ever goes down seems to be when you experts think it's about to go up.
And vice versa.

Obviously, as a dividend reinvestor, I hope you're right this time.

Let's all hope Footsie plunges good and low, and stays there for five years or so.

thairet 26 Apr 2012 , 4:09am

Cliff, your article reinforces the argument to be big and blue with dividends true.

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