Global stock rout and ‘more to come’

By Eamon Quinn

A long-feared rout of sky-high company valuations continued around the world, with Asian, European and US stock markets badly hit.

After the US Dow Jones index slumped 830 points earlier this week, the selling spread to Asian markets, which lost almost 4%, and triggered a loss of the Ftse-100 in London and other key European indices of 2%.

“The slide in equity markets continues but the ferocity has been toned down. The Dow Jones Industrial Average is down about 140 points, which seems positively sedate compared to yesterday’s 830 points,” said Fiona Cincotta, senior market analyst at City Index. “The dramatic US stock market plunge expected this morning did not materialise and instead the sell-off has slowed down to a more regular pace,” she said.

In Ireland, hotel stock Dalata and banks were among the worst hit, with AIB shedding 2.6% of its value and Bank of Ireland down by 3.3%. Dalata fell 5%, while heavyweight CRH shed 3% of its value.

Nonetheless, analysts say that the new records set for company shares around the world, and for tech shares, in particular, on US exchanges are being tested.

Fears over increases in US and world interest rates and uncertainty to world trade and growth caused by President Donald Trump’s trade spat with China have fuelled the selling.

“Three previous events this year have taken time to work themselves out, and the October panic will be no different. There has been some tentative buying of risk assets, but those brave enough to step in are only going to do so in small size, testing the waters and keeping the rest of their powder dry,” said Chris Beauchamp, chief market analyst at online broker IG. “Neither buyers or sellers like to give way, so it will take time for the move to become clear,” he said. Ms Cincotta said a surge in gold prices as a safe haven had benefited from the selling “frenzy” in stock markets. But Capital Economics said more selling was likely.

“The 5% drop in the S&P 500 so far this week suggests that investors are starting to factor in the prospect of the US economy slowing in response to tighter monetary policy. We think that this will start to happen in 2019, causing equities in the US and elsewhere to fall much further by the end of next year, as well as forcing the Fed to stop hiking rates and pushing Treasury yields down,” it said. And it warned: “While we are not anticipating anything as dramatic as the global financial crisis, we do think that economic growth will clearly have fallen significantly by mid-2019. Our forecast is therefore for the S&P 500 to drop by a total of about 15% from its recent peak.”

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