London’s blue-chip index continued to trade in negative territory as uncertainty about the impact of a massive earthquake off Japan’s northeast coast put further pressure on investor sentiment.
By early afternoon, the FTSE 100 index was down 20 points at 5,825. Insurers led the fallers as estimates began to emerge of size of the potential bill they face after the widespread devastation caused by the earthquake, with figures ranging from $10 billion (£6.3 billion) to $30 billion. RSA’s shares fell 2.12 per cent to 133½p, Prudential declined 1.97 per cent to 720½p and Legal & General lost 1.7 per cent to 115¾p.
The Nikkei fell 1.7 per cent, or 179.95 points, to 10.254.43 but was already trading lower on the “toxic cocktail” of unrest in the Middle East, sovereign debt concerns in Europe and worrying trade deficit data in both the US and China. However, a last-minute sell-off of 3.15 billion shares in the minutes after the earthquake - the strongest to hit Japan - dragged the index lower.
The Dow Jones industrial average closed 1.87 per cent lower, which triggered weakness in Asian markets before the earthquake hit close to the city of Sendai.
However, market makers at Société Générale were quick to argue that the earthquake should have a smaller impact on the market than its 1995 equivalent, which occurred 20 kilometres from Kobe. That earthquake triggered an 8 per cent decline in the Nikkei in the five trading days after the disaster but the effect of the Sendai disaster could be limited to the north of the country.
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“Natural disasters normally cause an initial sharp loss of output, but you do tend to see a V-shaped rebound as activity catches up, plus some stimulus if reconstruction investment also follows,” said an economist at the French bank.
Michael Derks, a currency analyst at FxPro, said that reaction to the disaster has been “muted thus far” as traders attempt to understand how damage the earthquake had caused. He expects trading to remain risk averse despite the scale of the tremor. “It has just perpetuated what was happening anyway,” he argued.