Black Monday: £74bn knocked off FTSE 100 as markets respond to deteriorating China outlook

The UK’s 100 biggest companies had £74bn wiped off their value today after a worsening outlook in China hit global stock markets. The FTSE 100 had lost 4.67 per cent by the time markets closed, nosediving below the 6,000 mark to 5,898.9.

 

China led the global sell-off with the Shanghai composite index plunging 8.49 per cent. A worsening outlook for major commodities importers hit UK mining companies, with Glencore and Anglo American hit by double-digit declines while BHP Billiton and Rio Tinto were also among the FTSE 100’s top five fallers.

 

On the continent, the German Dax was down 4.6 per cent while the French Cac 40 fell 5.47 per cent. Across the pond, the Nasdaq and Dow Jones lost 2.76 and 3.88 per cent respectively in late morning trading

 

“The penny is finally dropping that actually there’s a real problem in China,” Tim Edwards, a director at S&P Dow Jones Indices told City A.M.

 

China’s economy has slowed this year, with officials accepting a lower growth target of seven per cent. However, it may be fortunate to achieve even this. Experts say it desperately needs to reform its heavily regulated and state-controlled financial sector.

 

“Continued financial reform is the right route forward for Beijing but this is not an easy option and certainly not one they can follow without having to accept much weaker GDP growth and financial distress. Yet if they manage it successfully, which is a big ask, they have a chance of placing China on a sustainable growth path of around 4-5% in a few year's time,” Diana Choyleva, chief economist at Lombard Street Research, said.  She added it was “difficult to say” what China’s policy response might be.

 

“They had their plan of opening up [financial markets], but they have underestimated the market's impact on their plan. The process of releasing economic control will be an extremely difficult one for Beijing,” Choyleva said.