Share prices see more falls as investors look to G20 for action

European stocks endured more losses on Friday as investors continued to downsize risk and awaited the output of a pivotal G20 meeting in Washington.

The FTSE 100 fell below the 5000 level for the first time in a month as the UK Index saw losses of 1.5%, though it did see a small bounce, having hit near-term support levels of 5930.

Trading has been very choppy today, with investor sensitivity high and reacting to any news, comment or speculation out of the G20.

The miners were the key drag on the FTSE 100 yet again, with the sector losing 1.3% to add to yesterday’s near double digit percentage losses. With deep concerns over global growth and slowdown specifically in China, the world’s fastest emerging economy, both the prices of mining companies and copper have lost some significant ground over the last 48 hours and the freefall in prices here has not stopped today. ENRC and Xstrata lost 4% on the day as a result.

Today we have seen investors use any stock rally as an opportunity to sell their shares at better prices, a move that makes any rally fragile and emphasises the poor appetite for risk amongst investors who are sitting on the sidelines and awaiting developments at the G20. Topping the FTSE 100 however and adding some heavyweight support was Vodafone, whose shares rose 2% after UBS added the communications giant to its key European call list. Tesco shares also saw support with shares rising 1% after Evolution Securities upgraded its view on the supermarket to ‘neutral’ from a previous ‘sell’ guidance.

Investors want to see action, not words from the G20
After yesterday’s sharp losses endured by global stock markets on fears of a worldwide slowdown in activity, investors are looking to the G20 to deliver credible coordinated action to help calm equity markets and maintain global growth. An unexpected communiqué from the G20 early this morning hinted as much that there will be action, and this was enough to kick markets off in positive territory, but investors are unwilling to bet too much on this until they hear exactly what action is being proposed.

Too often have the world’s leaders blown hot air rather than instil definitive action and so naturally there is a case of investors wanting to see the proof within the pudding this time around in what is turning out to be one of the most pivotal G20 meetings since the heights of the previous financial crisis.

One element that has to potential to support the markets and ease investor concerns is a topping up of the EFSF, which at €440bn, is seen as nowhere near credible enough to actively maintain liquidity support for indebted nations within the eurozone. The fact that the EFSF was mentioned in the G20 communiqué raises hopes that this option remains on the table for discussion and potential implementation, as long as the new powers of the EFSF discussed months ago can be ratified.

Optimistic déjà vu? 
Naturally there is a case of optimistic déjà vu with the G20 meeting considering the last time the world’s financial markets were lifted from the depths of darkness was in April 2009, following a G20 meeting in London that agreed to pump an additional $1trillion into the global economy. That day the then Prime Minister Gordon Brown uttered that “this is the day that the world came together to fight back against the global recession, not with words but with a plan for global recovery and reform and with a clear timetable.” The result of that was a 60% rise in the FTSE 100 Index over the ensuing two years.

With the global economy now back teetering on the edge of recession once more, investors are looking for similarly powerful action that has enough legs to rebuild the global recovery in the long term