Investors sell off bank and company shares exposed to lower commodity prices and opt for gold and government bonds

February 11, 2016 – The Guardian

Panicked investors sought refuge in the safe havens of gold and government bonds on Thursday as a fresh spasm of global selling sent share prices crashing in Asia, Europe and North America.

Banks and companies exposed to lower commodity prices were among the biggest losers in London, where the FTSE 100 Index fell by 135 points, a drop of more than 2%. An index of Britain’s banks fell to levels not seen since the depths of the post-Lehman Brothers recession in early 2009.

London’s fall, which wiped £35bn off the value of the FTSE 100, was part of a global rout that began in Tokyo, spread to the major bourses of Europe and then to Wall Street, further unsettled by another drop in oil prices and news of a regulatory investigation into the affairs of aircraft manufacturer Boeing.

The Dow Jones Industrial Average fell 255 points, or 1.6%, to 15,660. The S&P 500 fell 1.2% and the Nasdaq Composite lost 0.4%. All three had bounced back late in the day from sharper falls but, again, financial stocks were big losers. Financial shares in the S&P have lost roughly 18% so far this year.

Janet Yellen, the chair of the Federal Reserve, did little to lift spirits when she said that negative interest rates were “not off the table”. Until this week, investors had assumed that the US central bank would raise borrowing costs steadily this year after moving for the first time in almost a decade in December.

The International Monetary Fund said it was concerned about the recent sharp declines in the share prices of European banks, because a healthy banking sector was needed to underpin economic growth.

The interest rate – or yield – on a 10-year UK government gilt declined to below 1.3% at one stage, a record low, as investors anticipated a prolonged period of sluggish growth, weak inflation and low interest rates.

Investors fear that although banks have bolstered their capital positions since the last crisis, they will start to report losses on non-performing loans to energy and property companies affected by faltering growth, while their profitability will also be hit by negative interest rates. HSBC shares closed at their lowest level since the spring of 2009, when the global recession bottomed out.

The three biggest fallers on the FTSE 100 were all financial institutions – the Prudential, Aberdeen Asset Management and Barclays – which were all 7% lower.

But their losses were eclipsed by French bank Société Générale, which lost 13% of its value after admitting that “headwinds” could knock its profits this year.