The FTSE 100 index opened at 6,462.55 and immediately fell by just over eight per cent – it has since recovered a little but remained six per cent down at 11am.
More than £130bn was wiped off the value of the companies listed on the FTSE 100 with the collapse.
Crude oil prices also fell overnight after Saudi Arabia started a price war with Russia. The price of a barrel of crude oil fell to near $30, one of its biggest daily falls on record.
Global stock markets have been suffering bouts of volatility not seen since the 2008 financial crisis over the past fortnight due to the coronavirus outbreak.
Ayush Ansal, chief investment officer at Crimson Black Capital, said: “The FTSE’s collapse on Monday morning shows the markets have passed from panic mode into pure hysteria.
“Markets were at breaking point before Saudia Arabia’s decision to launch an oil price war, but this latest development has taken them beyond that.
“Any positive news around the coronavirus is being ignored outright, while negative developments are being catastrophised.
“Markets will always be irrational but Monday morning saw the end of reason.”
Recession ‘almost inevitable’
Nigel Green, chief executive and founder of financial advice firm deVere Group, said a global recession is now “almost inevitable” this year.
He said: “Every major stock market is getting hammered as oil prices plunge due to a price war following the breakdown of Saudi Arabia’s oil-cutting alliance with Russia over the weekend.
“This is an issue that will not be resolved overnight and it can be expected to have far-reaching consequences.
“It comes as the world scrambles to deal with the market mayhem and economic fallout caused by the relentless global spread of coronavirus.
“With the combination of the implications of the oil stand-off and the outbreak, I now believe that it’s almost inevitable that there will be a global recession this year.”
Adrian Lowcock, head of personal investing at investment platform Willis Owen, said: “The scale of the fall means the UK has entered bear market territory for 2020, and only an end to coronavirus panic is likely to reverse its trajectory as confidence has completely evaporated.”