The London stock market is bracing itself for a fresh bout of turbulence after the carnage that hit investors last week continued to affect confidence.
The trading rout in the United States and Britain on Friday extended across the world yesterday, with the Dubai Financial general index slumping 7 per cent as the weak oil price hit share prices in the region.
Exchanges in Abu Dhabi and Doha fell by 5 per cent, while Saudi Arabia’s Tadawul all-share index, the leading market in the Gulf, fell almost 7 per cent as concerns over the strength of the global economy and its effect on the oil price spooked shareholders. Israel’s TA-25, which is less oil-dependent due to the country’s strong technology and pharmaceutical industries, slid by 4 per cent.
That raised fears that last week’s brutal sell-off would continue when markets opened in the Far East. Analysts in Australia said that the price falls had left no room for disappointment for companies reporting results this week, including BHP Billiton, the commodities company also listed in London, and Westfield, the shopping centre business.
Paul Kavanagh, the chief executive of Patronus Partners, the asset management and stockbroking firm, said it was unlikely that volatility would subside before the Federal Reserve interest rate decision in the US, due on September 17.
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“In recent weeks, there has been growing evidence that all is not well with the global economy, but until recently this has been confined to emerging markets. The move by China to devalue [its] currency two weeks ago was the catalyst that finally got developed equity market investors to re-evaluate some entrenched risk-on positions,” he said.
China has moved to shore up its economy by allowing pension funds controlled by local governments to invest in the stock market. The move, introduced over the weekend, could involve pension funds investing up to 30 per cent of their assets into listed companies.
The local government has 2 trillion yuan (£200 billion) under management. The Chinese stock market slumped almost 12 per cent last week.
Bijan Zanganeh, Iran’s oil minister, stoked speculation that an emergency Opec meeting could be called after the oil price fell below $40 on Friday for the first time since 2009. He said Iran would “endorse” such a move.
The Dow Jones industrial average shed 531 points, more than 3 per cent, on Friday to close at 16,459.75, leaving it 10 per cent off its record high in May. The FTSE 100 fell 180.24 points to 6,187.65.