Investors nervous in wake of steep falls

Friday's steep falls in stock markets on either side of the Atlantic have ensured that trading will resume nervously this morning, especially after two leading insurance companies confirmed that they are imposing stiffer penalties on any investors who try to cash in their holdings.

And today Investec, the South African financial services group, is expected to reduce the intended proceeds from its imminent London share sale.

Last week began with the FTSE 100 index falling below 4,000 points for the first time since December 1996, and ended with a 199-point fall to 4098.9. On Wall Street, the Dow Jones Industrial Average slumped 390 to 8,019.26 after a worse-than-predicted US trade deficit for May.

Errol Francis, who manages £4bn for Baring Asset Management, said: "Some shares look cheap, but we're waiting for a catalyst – some evidence of good news."

Justin Urquhart Stewart, a partner in Seven Investment Management, asked: "How much further down can it go? I have pencilled in 3,800 as the bottom, but we are facing a buyers' strike here, and I think you are going to see more weakness before you see more strength. Be prepared for further losses, but astute investors are trying to buy into good businesses which are suitably transparent, like utilities. I would say if you are in the market already, stay with it, but I am not sure it's the time to buy yet."

But any customers who might be tempted to sell their policies with Legal & General or Norwich Union will discover that they will suffer savage penalties.

Legal & General raised its penalty, or market value adjuster (MVA), from 19 per cent to 22 per cent, exceeding the 20 per cent charged by the stricken Equitable Life. And Norwich Union has increased its impost for the second time in a week, from 8 per cent to 12 per cent. A week ago it was only 6.5 per cent.

Both companies denied the moves were in response to policyholders rushing to sell.

"We are doing this as a result of the continuing fall in the market," a Norwich Union spokesman said. "There has been no increased demand for redemptions, though there has been an increase in inquiries and these increases may stem any outflow. However, we want to protect those staying in the funds."

John Morgan of Legal & General said: "We have increased our MVA more actively than most. I don't think there has been a flood of people leaving – we just do it on the basis of fairness to those who stay."

Earlier this month Investec said it wanted to raise £100m by selling new shares as part a dual-listing launch in London and Johannesburg. But since then its shares have fallen by 15 per cent, and estimates of the likely proceeds now range from £70m to as little as £30m. A company spokesman declined to comment ahead of today's announcement.

However, the appetite of American investors for new issues is set to be thoroughly tested this week, as five companies are expected to be raising money.

"In a market like this the goal of the investor is to take as much risk out of the trade as possible," said Tom Ortwein, the head of US equity capital markets for CIBC World Markets. "If a deal is high quality, I feel it can get done."