Fears that the FTSE 100 could be dragged into bear market territory deepened yesterday as global equities were gripped by volatility in another day of torrid trading.
The FTSE 100 has so far managed to fend off falling into the bear trap, trading around 19 per cent off its all time high of 7,103 in April last year. However, experts have warned that London’s premier index is now on the brink.
"We are just two weeks into 2016 and it may already feel like the year of the bear,” said David Kelly, chief global strategist at JP Morgan.
A key measure of a bear market is an index trading 20 per cent lower than its peak. The French Cac40, the German Dax, the Russian main market and the Shanghai Composite are all in bear territory on this measure.
Yesterday, Japan’s Nikkei 225 and Australia’s main index both came perilously close to entering a bear market, down 19 per cent from their 2015 peaks.
Brenda Kelly, chief market analyst at London Capital Group, told City A.M.: “There are a lot of signs that we could very well enter bear market territory, that is the trend we're seeing in markets globally at the moment.
“We have had a long, strong bull market since 2009. The FTSE 100 is very close to a bear market.”
Concerns over a global economic slowdown, a collapse in the oil price and a series of doomsday predictions from the likes of Societe Generale and Royal Bank of Scotland have all contributed to major sell offs this year.
In the US, the only market to fall 20 per cent below its peak is the Russell 2000 small cap index, often used a barometer of future Dow and S&P risk. The FTSE has closed between two and five per cent off its opening call twice already in 2016. Through 2004 to the end of 2006 that only happened 12 times.
Russ Mould, investment director at AJ Bell told City A.M.: “Volatility needs to quiet down before confidence can return. In the short term it’s tinfoil hat on.”
European equities have now fallen to levels last seen before the European Central Bank announced it would start its quantitative easing programme late last year.
Meanwhile, the total value of the world’s listed companies has dropped to its lowest level since the autumn of 2013 according to Bloomberg data.
The markets have until now been regarded as being in correction territory, but as they edge over the bear market level traders fear a sell off. Brenda Kelly added: “For investors, holding is the better attitude. There will always be troughs and peaks, that's not to say there won’t be bigger losses for individual investments, but at times like this you start to see value, and potential opportunities.”