FTSE tumbles as fears over world economy grow

BRITAIN’S benchmark equity index fell yesterday, with construction and mining stocks among the worst performers, as a clutch of worrying geopolitical situations hit markets.

Traders cited three key factors behind the market fall – lacklustre Chinese data, a political crisis in Portugal and mounting civil and political unrest in Egypt – and expected further falls in coming sessions.

The blue-chip FTSE 100 index closed down by 1.2 per cent, or 74.07 points, at 6,229.87 points.

The FTSE raced to a 13-year high of 6,875.62 points in late May but those gains have been eroded over the last month, with the FTSE now up by roughly six per cent since the start of 2013.

Stock markets have been hit by expectations that the US Federal Reserve will scale back economic stimulus measures that have driven the equity rally, and they suffered further blows yesterday from developments in China, Portugal and Egypt.

Data showing a slowdown in construction activity in China, the world’s biggest metals consumer, hit mining and construction stocks, with miner Anglo American and building group CRH ending on top of the FTSE 100's loserboard.

A political crisis in Portugal caused by disagreements over austerity measures also rekindled worries that Europe had not yet fully overcome the Eurozone’s sovereign debt crisis, while Egypt risked a military coup.

“Political upheaval in Egypt and an austerity backlash in the Portuguese government – which threatens to re-ignite the Eurozone crisis – have led to a strongly negative sentiment today. It seems that for now we should accept a summer of market volatility,” said IG senior market strategist Brenda Kelly.

“It is perhaps the fact that the FTSE is not a reflection of the underlying UK economy that has seen the index drop and test the 6,200 level for the first time in six days,” Kelly added.

Traders saw the FTSE 100 trapped between 6,000-6,300 points – its trading range over the last two weeks – in the near term, with little potential to rise above that.

Securequity sales trader Jawaid Afsar saw little reason to add to positions on the FTSE 100 at present and favoured “defensive” stocks such as utilities and healthcare companies, seen as among the most resilient to any economic downturn.

“It’s very hard to be bullish in this environment,” he said.