Fear returns to stock markets
Global stock markets took another tumble today, as investor sentiment turned negative over economic prospects and the eurozone debt crisis.
The FTSE 100 index of leading UK company shares closed down 239.37 points, or 4.49%, at 5,092.23.
A bigger fall was recorded in Germany, with the DAX closing down 5.82%.
Banking stocks were the worst daily performers. Barclays and Royal Bank of Scotland both lost more than 11% of their value in one day.
Investors selling equities appear to be seeking the apparent safe-havens of government bonds of gold.
Gilt yields fell as the price of government securities was pushed up by investors seeking safety. A 10-year US Treasury bond yield has fallen to below 2%, the lowest yield for these bonds in 70 years.
Gold also reached a record high of $1,826/ounce as a result of this flight to safety.
One of the main areas of investor fear appears to surround the exposure of European banks to eurozone debt and also the exposure of US banks to European banks.
This debt and banking contagion is what is worrying investors so much and prompting a move away from ‘risk assets’.
A regular slew of poor economic data is doing little to help investor sentiment either.
The figures published this week showing economic growth stalling in Germany have raised questions over the ability of the strongest economy in Europe to pull the rest of the eurozone out of a debt quagmire.
Morgan Stanley has painted a particular bleak picture with its outlook for the US and Europe saying both regions are “dangerously close to recession”.
Global investment markets are likely to remain highly volatile at least for the immediate future.
It will take decisive political intervention to help investors rediscover their confidence. Until that happens, investors should avoid making the emotional decisions which are sometimes prompted by volatile stock markets.
Sticking to a long-term plan, relating investment decisions to financial planning objectives and considering market volatility in the context of your specific investment portfolio are always sensible things to do.
Photo credit: Flickr/Martin Bamford