The City fought off panic on Tuesday as a global share sell-off slashed £37 billion off the value of London’s blue-chip giants.
A turbulent day saw the FTSE 100 sink 143.34 points to 7189.64 although leading shares bounced back from the nine-month low of 7079.41 in early trading.
The biggest Wall Street sell-off in six years spread to Asia overnight, sending Japan’s Nikkei and Hong’s Hang Seng down by 5%. The chaos continued in Europe today, with Germany’s Dax sliding 1.8% and France’s CAC40 off 1.4%.
It has been triggered by worries over US inflation forcing the Federal Reserve into more interest rates rises than the market expects this year, as well as concern that US equities are overvalued.
James Bateman, chief investment officer at funds giant Fidelity International, urged calm. He said: “At this stage, the money is made by keeping your head when others are losing theirs. The tech-fuelled rally in the US had long lost any sense of reality in its valuations, the prospect of inflation remaining low forever could not last, and we have a new and untested Fed chair [Jerome Powell, pictured]. It would be more worrying if markets didn’t react.”
The Dow Jones Industrial Average is still up more than 8% this year and 21% in the past 12 months despite Monday’s rout, which knocked 4.6% off.
But Mark Haefele, global chief investment officer, at UBS Wealth Management said: “We remain confident that the bull market remains intact.”
And Gerard Lane, at Artorius Wealth, said: “In my view there is an opportunity to go and buy the market in a properly diversified portfolio… I don’t think there is cause for panic or distress.”
But others flagged up overpriced US shares compared to European counterparts, with dividend yields of less than 2% in the US compared to 4.3% for the FTSE 100.
CMC Markets’ Michael Hewson said: “This is long overdue and investors have been very complacent. We could see further falls and you would have to be very brave to get back in at these levels. We may have already seen our highs for the year.”
He highlighted record borrowing to buy stocks, which hit $627.4 billion in November as markets roared to new highs.
Commodities were also hit as oil prices slid more than 1% to $66.82 a barrel. Copper fell as much as 2% to $7025 a tonne.