Correction Deepens for U.K. Stocks Posting Worst Week of 2015Camila Russo
A ninth straight day of losses sent the FTSE 100 Index 13 percent below a record it reached less than four months ago.
Britain’s benchmark equity gauge yesterday joined the ranks of Germany’s DAX Index and eight other western-European markets that have now entered a correction. Weighed down by miners and energy companies, the FTSE 100 slid 8.1 percent since Aug. 10, posting its longest losing streak since 2011. It dropped 2.8 percent on Friday, the most since October.
Even with domestic U.K. growth forecast to expand 2.6 percent -- double the rate for the euro area and more than the U.S. -- concern that China’s economy is slowing dominated sentiment, dragging commodities to a 13-year low. Companies such as Royal Dutch Shell Plc and Rio Tinto Group, among the biggest components of the FTSE 100, tumbled more than 18 percent since the gauge hit a record in April.
The FTSE 100 is “the sum-of-all-fears index,” said Ben Kumar, a fund manager who helps oversee about $14 billion at Seven Investment Management in London. “It would be difficult to design an index that is any worse for the current environment.”
Miners and energy shares combined account for 20 percent of the FTSE 100, almost double their weighting in the Stoxx Europe 600 Index. Glencore Plc made the headlines this week, tumbling to a record after posting a slump in first-half profit. It also cut its full-year earnings forecast for its trading division.
On Friday, declines in AstraZeneca Plc and Shire Plc dragged the FTSE 100 lower, taking its weekly drop to 5.5 percent. Health-care shares were the worst performers in Europe, tracking losses in U.S. peers.
“The biggest companies listed in the index are global companies in the commodities sector, which isn’t doing great,” said Luca Paolini, Pictet Asset Management’s chief strategist in London. “It’s a risk-off phase as people realize global growth is weaker than we thought.”
Paolini expects the FTSE 100 to reach its December low, and options traders are also betting on more losses. Nine of the 10 most-owned contracts are bearish, with those protecting against a 5.8 percent drop by December being the most popular.
Currency weakness and a slowdown in China, the biggest consumer of commodities, prompted Citigroup Inc. to cut its 2016 global growth forecast yesterday to 3.1 percent from 3.3 percent, its third consecutive downgrade. It held its 2015 estimate at 2.7 percent.
“Within the U.K. commodity-related stocks, we will need to see an end to the negative earnings revisions for investors to buy them again,” said Andreas Nigg, head of equity and commodity strategy at Vontobel Asset Management in Zurich.