Financial Times

Equities eye worst quarter since 2011 over fears for global economy

by Nicole Bullock ­ and Robin Wigglesworth 

September 30, 2015 | 2:15 am
  |     |     |   Start Conversation

US and global equities are heading for their worst quarterly showing since 2011, with investors rattled by China’s economic slowdown, uncertainty over Federal Reserve policy and
growing pessimism about corporate earnings.

Adding to investor unease, the International Monetary Fund yesterday warned that corporate failures are likely to jump in the developing world, after a borrowing binge in the past
decade.

With an array of sectors slumping since the start of July, beyond those directly influenced by the commodities rout, the global equity bull run of recent years is now facing a major
challenge.

The S&P 500 has fallen 8.7 per cent, the biggest decline since the third quarter of 2011. Previously high­flying sectors that led the market earlier this year, notably biotech and
healthcare stocks, have fallen appreciably in recent weeks.

“The question now is: are investors ready for the first down year since 2011 . . . and the worst year since the ‘bad days’ of 2008?” said Howard Silverblatt, analyst at S&P Dow Jones
Indices.

In turn, global stock markets are poised for their worst quarterly showing since 2011, shedding more than $10tn in value. The FTSE Emerging Index has tumbled over 21 per cent this
quarter, its worst showing since 2011, and the fifth­ worst quarter this millennium.

Investors have become increasingly unsettled by signs of weakening global growth and are now questioning the US earnings outlook as the largest economy prepares to raise rates
for the first time in nearly a decade.

The US earnings season, which starts in two weeks, is shaping up as a pivotal driver of sentiment, Mr Silverblatt said. Analysts expect quarterly earnings to decline 4.6 per cent year
over year in the third quarter, and revenue to fall 3.3 per cent, the third straight quarter of declines for top­line growth, according to data provider FactSet.

US and global companies have sold record amounts of debt against the backdrop of a blockbuster year for mergers and acquisitions.

M&A, equity capital markets, debt capital markets and syndicated lending produced fees of $16.5bn in the third quarter, the lowest total since banks billed $16.3bn in the final three
months of 2011 when markets were gripped by the eurozone debt crisis.

Under pressure from rising defaults linked to the energy sector, corporate bond prices are signalling broader weakness that reflects the downgrading of global growth prospects,
notably for emerging markets.

Expectation of a Fed interest rate rise is not the cause of the recent market turbulence, but it has been a catalyst, said Tony Crescenzi, a strategist at Pimco. “Though it hasn’t
happened, the Fed has elicited a typical Pavlovian response, causing markets to shudder at the thought and prompting a very significant chain of events that has rippled throughout
global financial markets.”

The decline of the commodities sector has reinforced fears over demand in China. The Bloomberg Commodity Index, a basket of 22 futures contracts, was down 14.8 per cent for the
third quarter, setting up potentially the biggest quarterly decline since the fourth quarter of 2008. The broad falls have encompassed commodities including oil, gasoline, soyabeans
and copper.

Standard & Poor’s warned that the combination of Fed rate increases, the Chinese economic slowdown, and the unwinding of domestic credit bubbles meant a “much darker outlook”
for emerging markets in the coming years.

 

Nicole Bullock ­ and Robin Wigglesworth 


by Nicole Bullock ­ and Robin Wigglesworth 

September 30, 2015 | 2:15 am
  |     |     |   Start Conversation

Big Read |  

Analysis

What Nigeria must do before signing AfCFTA

Nigeria’s President Muhammadu Buhari last Wednesday gave a hint that he would sign the African Continental Free Trade Area (AfCFTA)...


MTN Banner ADS 2


WSE

Newsletter Fixed income