If shares in London fall again today, it will be the tenth straight day of equity losses. Stock market plunges are not often characterised by such a consistent, relentless souring of sentiment. There’s usually the occasional day when braver buyers pile back in, seeing value and hoping for a bounce.
Events in China have investors around the world seriously rattled. The yuan devaluation is not of itself the problem — it’s what it says about how worried Beijing is about slowing growth. Add in its clumsy, desperate-looking and surely futile attempts to prop up a diving domestic share market, and the outlook for the world’s second-biggest economy is suddenly darker.
Yet investors pondering a FTSE 100 languishing below 6,200 could do with some perspective. The prospects for Britain and the overall global economy do not look measurably worse than in April, when it charged through 7,100. Since then Britain and America have both sprung back from a sluggish first quarter. The eurozone is picking up pace too, having parked the Greece problem for a while.
China — accounting for 15 per cent of world GDP — undeniably looks weaker. America and Europe (together approaching 40 per cent of world GDP) are each a notch stronger. The net effect shouldn’t be catastrophic, though there will be casualties, not least UK luxury carmakers, who feel the squeeze.
The slump in energy and commodity prices — a direct result of China’s lack of oomph — is overall a blessing, not a curse, to most western economies. Despondent investors should avert their gaze from the grisly charts showing their Shell and BHP holdings shrinking and look instead at the signs at filling stations showing fuel at less than 110p a litre. Those savings will be recycled into other parts of the economy. Firms and households will have more firepower to invest and spend.
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The other windfall boost is to monetary policy. Those who have pencilled in an interest rate rise in September for the US and early next year for the UK may well have to get their erasers out. With energy prices at their present level, inflation is going to turn negative again. It’s hard to see how policymakers won’t stay their hands for a little while longer.
The intensity of the sell-off may also have something to do with its timing. Decision-makers are on the beach. Investment bosses, whose job it is to grit their teeth and buy when others are fearful, are away. Their deputies prefer to sit on the sidelines than to make decisions that could prove career-threatening.
If that’s the case, prepare for another torrid week. Many chiefs won’t be back on the trading floors till after the bank holiday.
Warming to banks
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David Duffy doesn’t have the easiest job. The Clydesdale Bank chief may have given a hostage to fortune by promising he will float the business by January. Investors remain anxious about its legacy problems. Compensation bills for mis-selling seem to keep popping up years after the expectation that the last customer on earth must surely have claimed by now.
Then there is Clydesdale’s track record — a bit sleepy, a bit accident-prone. It’s also seen by some as the wrong size and shape: too small to harness the scale economies of the big five, too lumbering and traditional to scrap with challengers with whizzy alternative business models and modern IT.
Still, the banking sector has not produced a single IPO turkey in recent years; indeed, the sector has been a one-way bet. Of five banking share market debutants in the past two years, OneSavings is up 77 per cent since floating, Virgin Money up 53 per cent, Aldermore up 45 per cent and the tiny Shawbrook up 13 per cent. Even TSB, which Clydesdale most closely resembles, gave investors a hefty 31 per cent return when surrendering to Sabadell, of Spain. Investors are warming to banks again.
Principles and PRs
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With the exception of Boots, no airport retailer has taken the slightest notice of David Gauke’s rebuke over the great airport VAT scam. The financial secretary is rightly incensed that retailers such as WH Smith request boarding passes so that they can identify people flying to destinations outside the EU and then pocket their VAT.
Smith’s spectacularly missed the point at the weekend when it attacked a newspaper that it said had overestimated the cash diverted. This is not about the scale of the offence, but the principle. Not a single Smith’s director has dared publicly to defend the policy, leaving the dirty work to assorted PRs.
All very dispiriting. When the British tourist industry next tries to argue for a lower rate of VAT for inbound visitors, a reform that would make a lot of sense because it would level the playing field with other European nations, Mr Gauke will doubtless be tempted to reach for the Smith’s response — two fingers.
Cap’n Bob’s ghost
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The great and the good are rightly demanding that Sir John Chilcot get on with it and publish his findings on the Iraq war. While they’re about it, they might also direct their fire at the Financial Conduct Authority. Its report into the collapse of HBOS is years overdue and delayed by the same Maxwellisation that has so enmeshed Sir John.
Giving those criticised the chance to respond in advance seems fair and just, but the hijacking and abuse of this legal safeguard by men with deep pockets, dogged lawyers and an infinite capacity to quibble and prevaricate is probably not confined to politics.
Patrick Hosking is Financial Editor of The Times. Follow him on Twitter: @HoskingTheTimes