FTSE falls to a five-month low on China fears

BRITAIN’S top share index fell to a five and a half month low yesterday, as investors rotated out of growth sensitive stocks as concerns built over growth and liquidity in China.

The FTSE 100 closed 87.07 points lower, down 1.4 per cent, at 6,029.10, having hit an intraday low of 6,023.44 not seen since early January.

The index opened weaker yesterday after China stocks saw their worst session in almost four years on fears that the central bank would keep money tight and economic growth could slow sharply.

The falls came after Friday ended a fifth consecutive week of losses on the FTSE 100, as the US Federal Reserve finally outlined an anticipated plan to begin winding down its stimulus later this year.

“The Fed tapering talk highlighted the concerns about what could happen in the world’s number one economy, then we’ve had a cash crunch in the world's number two economy, so that really puts a stick in the spokes of the global recovery,” said Mike van Dulken, of Accendo Markets.

The Bank of International Settlements said over the weekend that central banks should not allow fears of disrupting markets to delay the withdrawal of monetary stimulus, and the People’s Bank of China (PBOC) continued to take a tough line with its banks as the central bank tries to rein in excessive credit growth.

“We’d been looking for the intervention from central banks to help out... but [the PBOC and BIS statements] both emphasise once again that there’s a limit to what central banks can do.”

Central bank stimulus has helped the FTSE 100 rally to a 13-year peak in May. The blue-chip index is now more than 12 per cent off those highs.

Volatility, a crude measure of investor fear, spiked seven per cent to levels not seen since before Mario Draghi said he would do “whatever it takes” to save the euro last July, which sparked a multi-month European equity rally.

Financial companies weighed, with Aberdeen Asset Management down 4.2 per cent, taking its fall since May to 29 per cent.

Growth-sensitive miners were weaker, with the sector down 3.4 per cent following the China developments.

Copper miner Vedanta led FTSE 100 fallers with a 6.5 per cent slide as copper hit a three-year low.

Investors rotated into more defensive utilities, with United Utilities and Severn Trent up one per cent and 0.9 per cent, two of only seven gainers.