The London index ended last year 12.5% lower than at the start of the year, its largest annual fall since the global financial crisis.
Richard Hunter, head of markets at Interactive Investor, said the themes of 2018 have “spilled over” into 2019.
US futures are also looking weak ahead of the market open there, Hunter noted. “Concerns around slowing global economic growth, as evidenced both by the drop in the oil price and pressure on mining stocks, have surfaced again, following a weak showing in Asia overnight.”
Ryan Hughes, head of active portfolios at AJ Bell, said: “In the UK, the FTSE has a high weight to resources and it is these companies that have dragged the marked down today and investors see the potential for lower commodity prices in a slower growth world.”
Trump trade war hits Chinese manufacturing
Although Brexit continues to weigh on the UK market, Willis Owen’s head of personal investing Adrian Lowcock said today’s trigger is weak manufacturing data in China leading to concerns that the trade war between China and the US is having a bigger impact on the Chinese economy and is feeding into the narrative that global growth is slowing, including in Germany and Japan.
“Sentiment at the moment is very weak and investors are looking for any signs to support a negative outlook so naturally the weak Chinese data helps support the bearish view,” he said.
‘Looming spectre of Brexit’
However, Lowcock remained hopeful as he added that a change in sentiment could reverse just as quickly as it started, and investor confidence could return. “It is important to remember stock market sell offs can be brutal but also short lived. In 2018 we saw the year start with a big sell off before recovering (although only to sell off again at the end of the year).”
Tilney’s managing director Jason Hollands agreed as he argued that while he thinks equities look oversold across the board, particularly in the UK. “Given the international nature of the FTSE 100 this looks unwarranted and so that combination of appealing valuations and an attractive dividend yield makes me feel quite upbeat about the opportunities available in UK equities which have a lot of gloom priced in already.”
However, Hughes was sceptical about the UK equities index’s ability to shrug off current difficulties due to the “looming spectre of Brexit”. “How that pans out with be crucial for assessing the outlook for UK equities for the coming year and it will be vital to keep a close eye on sterling as these currency moves may well help identify who the potential winner and losers are over the next 12 months.”
The critical vote over Theresa May’s deal takes place in parliament this month and, unless there is an intervention, the UK will automatically leave the EU on 29 March 2019.