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Scale of current credit fears last seen after 9/11, says F&C

Volatility in the financial markets is at its greatest level since September 2001 with the market trading on fear, says F&C.

F&C head of asset allocation Paul Niven says the market volatility that has followed the sub-prime lending “carnage” in America has been confirmed by the widespread losses for investors, particularly of hedge funds.

He says current events echo the credit fears of 1998 when the collapse of the Long Term Capital Management hedge fund led to losses spreading quickly across global financial markets.

Niven says: “Now, as almost a decade ago, there is great uncertainty as to how far risks are spread within the financial system and exactly where the losses reside. The market is trading on fear and financials are bearing the brunt of losses.”

ABN Amro Bank NV economist Ruben van Leeuwen says: “We believe that market fears that these problems could lead to a credit crunch, affecting the economy as a whole, are overdone. Many fundamentals are strong. Company profitability is high and balance sheets are generally strong. Macroeconomically, inflation is low as are budget deficits. While the problems in the US housing market and in the subprime mortgage market are serious, they are not large enough to undermine the economy as a whole.”

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