FTSE 100 dips below key 5,000 threshold
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Your support makes all the difference.The FTSE 100 crashed through the 5,000 barrier to close at an eight-month low yesterday amid fears there was worse in store for the stock market.
London's blue-chip index ended its first day's trading after the jubilee holidays down 96 points at 4989.1, its lowest close since 3 October. In morning trading it sank as low as 4971.4, a loss in value of £27bn.
The falls reflected a delayed response to the sharp collapse in US stocks on Monday and Tuesday amid revived fears about the credibility of company accounting.
Analysts said the FTSE 100 could sink lower if insurance companies reacted by selling equities and switching into safer bonds to meet regulatory solvency requirements. Graham Secker, a strategist at Morgan Stanley, said: "A concerted period below 5,000 could cause real pain for the insurance sector."
Susan Holliday, insurance analyst at JP Morgan, warned: "UK insurance companies don't have as much excess capital as their European peers, and have traditionally held more of their assets in equities."
John Hatherly, the head of investment research at the fund manager M&G, said the FTSE 100 could fall as low as 4,700 depending on the degree of caution shown by companies in second-quarter results statements. "The negative momentum out there is very strong. Many investors are questioning the economic recovery, and especially the ability of companies to translate that into better earnings," he said.
But some strategists said the market's weakness provided a fresh buying opportunity. HSBC repeated its 5,700 year-end target for the FTSE 100, while Merrill Lynch was predicting 5,500. The FTSE 100's lowest point since the beginning of the bear market two years ago was touched on 21 September, when the index closed at 4,433.7.
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