£113bn wiped off FTSE 100 in ten days, sparking financial fears

Analysts believe the drop was sparked by plunging oil prices and a panic sell-off in China

Financial markets were in chaos yesterday, as £113bn was wiped off the FTSE in ten days.

Wall Street also got off to its worst new year start on record.

The stock market capped the first two weeks of 2016 with a steep slide Friday that sent the Dow Jones industrial average down nearly 400 points. 

All three major stock indexes — the Dow, the Nasdaq composite and the Standard & Poor's 500 — are now in what's known as a correction, or a drop of 10 per cent or more from their recent peaks. 

Analysts believe the slump is due in part to alarm over a slowdown in China and the plunging price of oil to its lowest level in 12 years. Investors are already seeing damage to US corporate profits, particularly at energy companies. 

Dan Farley, regional investment strategist at the Private Client Reserve at US Bank said: “Oil is the root cause of today. People are uncertain, and when they're uncertain they're scared."

Crude oil has dropped below $30 a barrel from a high of over $100 during the summer of 2014, eviscerating energy company profits. On Friday, Williams Companies led a slide among oil, gas and mining firms, falling $2.19, or 12 percent, to $16.10. 

David Chalupnik, head of equities at Nuveen Asset Management said: “The hope was global growth would stabilize, and early in 2016 here, that has been a disappointment, too.” 

He added: “We don't believe we're going into a bear market. The reason for that is the US economy is sound.” 

A bear market occurs in the event of a fall of above 20 per cent from a recent high.

In China, the Shanghai Composite Index slid 3.6 percent to its lowest close in 13 months.

China's official Xinhua News Agency reported that new bank loans during the last month fell from a year earlier, another sign that the country's economic growth is slowing from the torrid pace of the past few years.

With additional reporting by Associated Press

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