The fear of violence in Ukraine, as well as the possibility of rising interest rates, caused stock markets to plummet and bitcoin fell to six months lows.
On a day of turmoil on financial markets worldwide, the FTSE 100 index fell 2.6 per cent or 196.98 points to 7297.15 while the FTSE 250 plunged 3.6 per cent or 810.74 points to 21,452.5.
That wiped £68billion off the value of Britain’s 350 leading listed companies while the Dow Jones Industrial Average shed more than 1,000 points in early trading before recovering in New York.
Rout: The FTSE 100 fell 2.6%, or 196.98 point to 7297.15 on a day when financial markets were in turmoil worldwide. Meanwhile the FTSE 250 plummeted 3.6% or 810.74 to 21,452.5
George Godber, a fund manager at Polar Capital, said the ‘chilling hand’ of Vladimir Putin was being felt on the financial markets as 100,000 Russian troops wait at the border with Ukraine.
Russian stocks were also hit with Moscow’s benchmark Moex index down nearly 6 per cent – taking losses for the year to 15 per cent.
Analysts warn that there will be more volatility this week, as the US Federal Reserve meets for interest rate discussions and Microsoft and Tesla deliver results.
Craig Erlam, senior market analyst at trading firm Oanda, said: ‘It could be a make-or-break week for the markets, with the Fed meeting tomorrow, big tech earnings, and tensions on the Ukraine-Russia border. The situation could worsen before it improves.
‘The Fed needs to strike the right balance between taking inflation seriously and not wanting to cause further unnecessary turmoil in the markets. Not an easy balancing act.’
The losses in London were echoed around the world with the Dow, S&P 500 and technology-heavy Nasdaq on Wall Street off as much as 5 per cent before bouncing back; the Dow closed 0.3 per cent up.
Nasdaq is also rallying, but it’s experiencing its worst month in October 2008, during the heights of the financial crisis.
Europe saw major benchmarks fall by over 3 percentage points in Frankfurt, Paris Milan, Milan, and Madrid.
The sell-off was not confined to stock markets, however, with bitcoin down as much as 10 per cent to below $33,000 – its lowest level since July. Half of the value lost by bitcoin since November, when it topped out at $68,000.
Victoria Scholar, head of investment at Interactive Investor, said: ‘It looks like the bubble has burst as panic selling grips the [crypto] market.
Brave traders might use this major repricing as an opportunity to buy the dip.’ Investors have suffered a turbulent start to the year with technology stocks that soared during the pandemic falling sharply as economies reopen and interest rates rise.
The Bank of England has already raised rates from 0.1 per cent to 0.25 per cent in December and could do so again next week. In the US, the Fed also indicated that rates will be raised.
The prospect of higher interest rates has hit technology stocks in particular as investors worry it will dampen growth – making these share prices look too high following the recent rally.
Apple was the US’s first business worth $3 trillion at the beginning of 2022, having tripled its value in four years.
But the stock has since lost 13 per cent of its value – or £290billion. Moderna, a darling of the stock market last year after making a Covid vaccine, and lockdown winner Netflix have fallen more than 40 per cent this year.
Morgan Stanley strategist Michael Wilson said tech shares became overvalued in the pandemic and the sell-off was ‘appropriate not just because the Fed is pivoting but because these kinds of valuations don’t make sense in any investment environment’.
British savers have suffered as well, as those who invested money in technology stocks funds. Scottish Mortgage Investment Trust – whose biggest holdings include Moderna – fell another 8.6 per cent yesterday; it has lost more than a third in value since November.