Global markets have suffered their worst quarterly performance since the depths of the eurozone crisis in 2011, with an estimated $11tn (£7tn) wiped off the value of world shares, despite an attempted rebound on the last day of September.
After a summer of wild swings, sparked by growing fears of a slowdown in China, leading shares have slumped from the record highs of a few months earlier, and recorded their second quarterly decline in a row.
The MSCI all-country world index, which monitors 23 developed and 23 emerging markets, has fallen nearly 11.5% since 30 June, marking its poorest quarterly outcome since the three months to September 2011.
The FTSE 100 index, which hit a record high of 7,103 in April, fell below 6,000 during the quarter and is down 7% over the three months despite a 152-point bounce on Wednesday to a close of 6,061.
Since the end of June, the UK’s leading index has seen £117bn wiped off its value. Again, this is its worst performance since the three months to September 2011 when it fell 13.7%.
The poorest performer among global markets is the Shanghai composite index, down 26% since the start of July and suffering its worst quarter since 2008.
Elsewhere, the FTSE emerging markets index is down more than 19% over the quarter, Germany’s Dax is down nearly 12%, and in the US the Dow Jones industrial average and S&P 500 have dropped nearly 8%.
The rout began in earnest in early August, when China tried to boost its flagging economy with the biggest one-day devaluation of the country’s currency, the yuan, in 20 years. The move was followed by further reductions in the yen’s value and sent shockwaves through markets, with investors fearing the country’s rapid economic growth was running out of steam.
Commodity prices slumped on concerns about slowing demand, with mining companies which had invested heavily facing the prospect of falling sales at the same time as they had run up significant debt. The commodity trader and mining group Glencore was a major victim of these worries, losing 40% of its value in the last month alone.
At the same time, the prospect of a rise in US interest rates has been coming closer despite the concerns about China and global growth. Emerging markets, which had been boosted by the cheap money pumped out by the central banks, the US Federal Reserve in particular, came under intense pressure, with the International Monetary Fund warning on Tuesday that rising rates could see a new credit crisis when borrowing costs rose.
Other factors hitting shares included the Volkswagen scandal, with the carmaker’s admission it had cheated on diesel emissions tests sending motor manufacturers’ shares sharply lower on the basis the whole industry could come under intense scrutiny.
And this month’s comments from the US presidential hopeful Hillary Clinton that she would clamp down on pharmaceutical costs – after the New York firm Turing Pharmaceuticals raised the price of a drug used by Aids patients by a staggering 5,000% – hit shares in drug companies.
So despite a bounce on Wednesday, prompted partly by hopes of further quantitative easing from the European Central Bank after the eurozone fell back into deflation, markets remain volatile. The latest Chinese purchasing managers index on Thursday and the US non-farm payrolls on Friday are likely to prompt further uncertainty.
Michael Hewson, the chief market analyst at CMC Markets UK, said recent market falls had usually prompted investors to return to equities before too long in search of a bargain, sending shares higher once more.
But, he said, this time may be different: “Given the volatility seen in the past couple of months there is a feeling that something may have changed with the slow slide in commodity prices since the peaks of 2011 starting to sow some significant seeds of concern about where the next catalyst for a move higher will come from.
“When commodity prices bottomed in 2008, the combined effects of a Chinese stimulus programme and US quantitative easing saw a swift about-turn in prices in a matter of months. It’s hard to see something similar happening now with oil and mining companies taking a scalpel to capital expenditure in large chunks.”
Hewson added: “Furthermore, investors are having to contend with a US Federal Reserve looking to tighten policy and not loosen it, raising concerns about the debt profiles of a good part of the basic resource sector, at a time when revenues are likely to remain under pressure due to low prices.
“While commodity prices may rise eventually there still remains a great deal of excess capacity in the mining and oil and gas sector, which still needs to be worked through. It is against this backdrop that investors are voting with their feet and reverting to cash and other safer havens.”
Even some of those havens have been under pressure, with gold recording its worst quarterly loss in a year as investors worried about the cost of holding the metal, which is priced in dollars, when a US rate rise could be on the way.
This article was written by Nick Fletcher, for theguardian.com on Wednesday 30th September 2015 13.40 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010