Fragile FTSE 100 continues to crumble

Under pressure from collapsing oil prices, global markets continued to crumble Wednesday, with the FTSE 100 crashing as much as 188 points, or 3.2%, to 5,688, its lowest point since November 2012. The outlook isn't great, with oil prices tipped to fall further, Asian markets on the backfoot and volatility at levels not seen since the crash last August.

Continuing its downward spiral, the price of Brent crude sunk another 3% to $27.87 a barrel. With the number of short positions on oil at its highest level since records began in 2006, and recent warnings from the International Energy Agency (IEA) screaming that the market could "drown in over-supply", it seems we're still to find the bottom.

Non-OPEC supply fell for the first time since 2012, cracking under the pressure of unbalanced fundamentals, mild weather and grim economic news. But the IEA reckons more will need to be done to rebalance the market.

And, a day after we heard that China experienced its slowest year of growth for 25 years in 2015, the People's Bank of China (PBoC) has pledged to inject CNY600 billion (£64.3 billion) into the banking system ahead of an anticipated liquidity squeeze leading up to the upcoming Chinese New Year.

"'Ugly; very, very ugly' describes current equity markets, with momentum swinging negative yet again and the bears firmly in control," says Rebecca O'Keeffe, head of investment at Interactive Investor.

"The fledgling hope from yesterday that markets were on the turn has been quashed by sharp overnight falls in Japan and Asia which have seen European markets fall aggressively. With every upturn being followed by deeper falls, investors are increasingly wary as it becomes more and more difficult to determine what might happen next."

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BHP Billiton was the FTSE 100's worst performer on Wednesday, as the shares collapsed to their lowest in a decade. The Anglo-Australian miner suffered further losses and wrote down nearly $1 billion (£705 million) thanks to redundancies, a revaluation of its copper business and closures. Sliding 7% to 583p, the shares are two-thirds lower than the 1,643p it traded at less than a year ago. Investec analyst Hunter Hillcoat believes the current price is about right.

Close behind BHP is insurer Prudential and Royal Dutch Shell. The oil major warned that 2015 profit will miss expectations of $10.8 billion. Shell's bid for BG goes to the shareholder vote next week.

Acting as a blue-chip safe haven amid current turbulence, investors flocked to Randgold Resources, with the gold miner the only gainer on London's premier index, up 2.5% to 107p.

Where next for the FTSE 100? Well, successful technical analyst Alistair Strang has written another excellent article for us from a chartist's perspective. Earlier this week, portfolio manager Lance Roberts also supplied some words of wisdom on how best to avoid capital destruction in a bear market.

Adding fuel to the fire is news yesterday that the International Monetary Fund (IMF) has cut its 2016 growth forecasts for the third time in six months.

"Despite this cut, underlying macro indicators remain consistent with moderate expansion but inconsistent with the violent sell-off in equity markets, whose weakness is more in keeping with pro-cyclical, risk-off behaviour, with increasing anecdotal evidence of an enhanced role for sovereign wealth funds in large-scale asset liquidation," said Panmure Gordon.

For those wondering what to do next, BlackRock's global chief investment strategist Russ Koesterich has some advice: "Not surprisingly, investors are now wondering what to do next. Understandably, many are seeking the comfort of so-called 'safe havens' like long-term Treasuries.

"When it comes to stocks, higher volatility will likely continue, which leads us to favour themes such as quality (i.e. companies with less volatile earnings and little debt), as well as strategies designed to minimize volatility."

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.