Another Big Fall for the Footsie
(LONDON) -- In his epic poem The Waste Land, T. S. Eliot wrote "April is the cruellest month," and, so far this year, he's been spot-on.
Down goes the Footsie
The first three months of 2012 were a one-way ride for equity investors, as share prices rose almost across the board. However, since closing at 5,966 on March 16, the blue-chip FTSE 100 (INDEX: ^FTSE) index of elite British companies has taken a dive.
As I write, the Footsie stands at 5,648, down 124 points, or nearly 2.2% on Friday's close. This is the third time in April that the U.K.'s main market index has closed down 2% or more in a single day. The two previous falls of this magnitude on April 10 (2.2%) and April 4 (2.3%).
At just after 4 p.m. Monday, these were the FTSE 100's 10 biggest fallers:
International Consolidated Airlines
Prudential (NYS: PRU)
Rio Tinto (NYS: RIO)
Eurasian Natural Resources
As you can see, this list of big fallers is dominated by mining companies and metals producers, which account for five of these 10 slumpers. Other companies on the list include those with heavy exposure to consumer spending overseas, notably International Consolidated Airlines (formerly British Airways) and clothing retailer Burberry.
There's hardly anything to report here, as just one share -- British Sky Broadcasting -- is ahead as I write, up 1%.
What's going on?
Mr. Market hasn't suddenly turned bearish. In fact, he's been worrying on and off for about a month. However, what sent investors rushing to the exits to sell today was the news that France could have its first Socialist prime minister in 17 years.
In the first round of the French presidential elections yesterday, Socialist challenger Francois Hollande had a narrow lead over center-right incumbent Nicolas Sarkozy. If Hollande pips Sarkozy in the second round of voting on May 6, then investors fear that he will ramp up France's social spending. Hence, renewed worries over France's budget deficit sent its bonds prices sliding, with European shares soon following suit.
In addition, earlier news that China's go-go growth had slowed to a more mundane 8.1% cast clouds over future demand for natural resources from emerging markets. With China recording its slowest quarterly growth since the global financial crisis of 2007 to 2009, this doesn't bode well for global growth.
This is only the beginning
For what it's worth, I've been very negative on the Footsie since it closed at nearly 6,000 over a month ago. Right now, world markets -- particularly European bond and equity markets -- are not being driven by fundamentals.
Instead of being lifted by modest price-to-earnings ratios and bumper dividends, markets are being driven by political instability. This is driving down bond prices and pushing up yields, notably in heavily indebted Italy and Spain, with shares following bond prices south.
Nevertheless, the worst is yet to come.
What about the impact of next month's general election in Greece? What about the 450 billion euros of debt Italy has to roll over this year? What about the near-12% yield on 10-year Portuguese bonds or the 6% Spain is being forced to pay? What about the strong possibility of another eurozone downturn?
In short, while the FTSE 100 has fallen by 320 points (more than 5%) from its recent high, this could be just the start of a long and miserable "summer of share slumps" for investors!
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