Japanese earthquake adds to market woes

The awful news from Japan has spooked the markets, driving the FTSE down this morning. And it's not the only reason for pessimism.

by Emma Haslett
Last Updated: 18 Mar 2011

The FTSE 100 share index opened 40 points lower this morning, at 5,804, as the impact of the terrible earthquake in Japan reverberated through the world's financial markets. But it's just the latest in a string of factors that have spooked investors, along with skyrocketing oil prices, the ongoing unrest in Libya and the threat of violence in Saudi Arabia. By mid-morning, the index had risen slightly, to 5,810. But with none of these factors likely to go away any time soon- aftershocks are still being felt in Japan, and the tsunami is still raging in the Pacific - there's unlikely to be a significant rally any time soon.

In terms of specific stocks, insurers have been particularly hard hit, as you'd expect. Many UK insurance companies are still struggling to recover after the bad weather at the beginning of the winter, and this will mean further costs. So Aviva, Legal and General and Prudential were all down, with Lloyds of London companies Catlin and Amlin also seeing their share prices slip. It's a similar story around the world: not surprisingly, Asian markets (including Tokyo’s Nikkei, Hong Kong’s Hang Seng and South Korea’s Kospi) are all down, while European markets have been sliding too.

It’s too early to assess exactly how much damage the earthquake will cause. The Japanese economy may still be in the doldrums, but French bank Societe Generale points out that the country is probably better prepared than it was at the time of the 1995 earthquake (which caused the Nikkei to plunge 8%). So the effects should be more limited: the Bank of Japan has already issued a statement vowing to ensure stability and liquidity in its financial markets. Not that this will be more consolation to the affected areas.

Some analysts argue that the quake has simply hastened an inevitable slide in the markets. Last night, the FTSE closed down 1.5% (to put that in perspective, that’s below the level at which it began the year, and its lowest in three months), thanks to the ongoing unrest in Libya, as well as reports from Saudi Arabia that police had been firing on protesters. The decision by Moody’s to downgrade Spain’s credit rating (citing the spiralling cost of bailing out its banking sector) hasn't exactly helped matters. Confidence is in short supply at the moment, and with good reason.

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