£50bn written off price of leading stocks as markets return to 2008

Blue-chip shares suffered their worst single-day fall since August, pushing the FTSE 100 into a “bear market” for the first time since 2008. Bear territory occurs when the market falls 20 per cent below its peak over the course of at least two months.

A wave of selling hit the London market early in the day as global fears over the falling oil price and China’s stalling economic growth took hold.

With central banks reaching the limits of their ability to support the financial system, the concern is that a new downturn could prove impossible to halt.

Billions of pounds were knocked off household names yesterday. HSBC, the country’s biggest company, fell by £3.5 billion and the oil giants BP and Shell together lost more than £4 billion.

The FTSE 100 closed at its lowest level since November 2012, dropping 203 points to 5,673.58, a 20 per cent fall from an all-time high in April last year.

Business leaders and analysts warned of further losses to come. Michael Spencer, chief executive of the investment company Icap, said: “I’ve been around for 40 years and this is the worst start to a year I’ve seen in my entire career. I don’t think this’ll be over in a month, or even two months or three months.”

Ken Rogoff, professor of economics at Harvard, added: “So far this is a very clear financial markets meltdown. It’s hard to point to the fundamentals that justify the order of magnitude of the financial panic.”

Leading fund managers tried to calm fears. Adam Laird, of Hargreaves Lansdown, said that there was no reason to believe that the world economy was on the cusp of a crisis like the one that struck in 2008 and even advised clients to consider adding to their portfolios. “This can be an opportunity for buying,” he said. “The market could fall further, but it will come back.”

Many investment experts pointed to positive economic data that indicated that a recovery was still under way. Data yesterday showed unemployment in Britain at a ten-year low and jobs at an all-time high. Growth figures in the United States showed steady expansion.

“All the hype is creating a situation where people feel they need to sell,” Michelle McGrade, chief investment officer at TD Direct Investing, said. “What’s important is that investors remain focused on the long term.”

Since last year’s FTSE high point, its total value has fallen by £370 billion. Starting in Asia, where Tokyo’s Topix index fell more than 50 points yesterday, the market gloom spread westwards.

The turmoil comes as the world’s business elite hold their annual meeting in the Swiss ski resort of Davos, where much of the talk was dominated by the significance of the bear market.
“Is it a bear market or is it a correction? I believe it is a correction,” said the former Barclays chief executive Bob Diamond, speaking from the World Economic Forum. Mr Rogoff, who is also in Davos this week, said: “It’s not clear whether that [the market falls] reflects the real economy.”