Renewed alarm about the fragile state of China’s economy sent mining stocks plunging and wiped £44bn off the value of Britain’s top companies on a day of tumultuous trading in financial markets.
Mining shares bore the brunt of the selling, with commodity companies making up five of the top 10 fallers in the FTSE 100, which closed 3% lower, some 172.87 points, at 5935.84. Glencore fell to its lowest level since it floated at 530p a share in 2011, down to 99.5p, before recovering to 106.35p, still down nearly 11% on the day.
Oil prices also fell sharply, with the cost of a barrel of Brent crude declining 1.7% on Tuesday, to trade at $48 a barrel.
The FTSE 100 finished at its lowest level since 24 August, and the biggest one day percentage fall since 1 September.
“It has been another dramatic day on the markets, which has seen the FTSE 100 index sinking below 6,000 points yet again and commodity shares taking a particularly bloody pounding,” said Jason Hollands, managing director of City investment firm Tilney Bestinvest.
The fresh outbreak of anxiety came as traders struggled to digest the implications of the crisis at carmaker Volkswagen, which admitted to installing software in 11m cars to baffle US emissions tests. Volkswagen’s share price was down another 16% on Tuesday, after losing 17% on Monday.
A downbeat forecast from anti-poverty lender the Asian Development Bank appeared to trigger the latest China panic, after it cut growth projections for the country this year from 7.2% to 6.8%, and downgraded its expectations for a swath of other Asian economies.
The focus on China, whose relentless demand for resources over the past decade has buoyed economic growth across commodity-exporting countries, was echoed by International Monetary Fund managing director Christine Lagarde. She told an audience at Washington thinktank the Brookings Institution on Tuesdat that the threats to global economic growth have increased. “The downside risks are greater than they were,” she said, singling out China and commodity prices as among the looming dangers.
Commodity-exporters have already been hit hard in recent months, with Canada and Brazil in recession, and Australia, which has boomed on the back of China’s appetite for iron ore and coal, slowing sharply.
Such was the selling pressure on Glencore that its shares were suspended twice during the day, at 8.56am and at 1.22pm, when a single order would have put the share price down by 3% or more, according to the London Stock Exchange.
Glencore’s relentless share price slide followed its £1.6bn fundraising last week, which was priced at 125p a share. Chief executive Ivan Glasenberg backed the refinancing with almost £140m of his own money, but is now sitting on a £20m loss on last week’s investment. In total Glasenberg owns 8.42% of the company.
Other fallers included Chilean copper miner Antofagasta, down 41p at 524.5p and Anglo American, 46.8p lower at 648.1p. BHP Billiton was off 54.5p at 1021.5p. There was only one riser in the leading index after RSA Insurance added 2.9p to 406.2p, recovering slightly from Monday’s fall which had been prompted by the news that a planned takeover by rival Zurich had fallen through.
China’s troubles have grabbed investors’ attention since US Federal Reserve chair Janet Yellen blamed the turmoil in emerging markets, and China in particular, for the decision to postpone a long-planned interest rate rise last week.
In the US the Dow Jones industrial average was down by 256 points, or 1.6%, by midday in New York, at 16,251. Pharmaceutical firms were hit hard, after Democratic presidential contender Hillary Clinton pledged to fight eye-watering drugs charges.
Fears of a slump in demand has pushed metal prices sharply lower in recent months, with copper around 18% lower than its 2015 peak, prompting companies to start cutting production. Meanwhile European coal prices have dropped 26% so far this year to a record low.
Economic policy will be under discussion during this week’s state visit to Washington by Chinese president, Xi Jinping, with many voices in the US critical of Beijing’s currency devaluation in August, and what some saw as the botched attempts to prop up share prices.
White House chief economist Jason Furman told Reuters: “You need to not be doing quick fixes in terms of using your exchange rate or exports.”
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