Alert

Shares in free fall amid global panic

Sydney Morning Herald

August 9, 2011 - 11:26AM

Australian stocks are being hammered as they rejoin the global plunge in equity markets, losing about $65 billion in value, as investor fears show little sign of easing.

Mid-morning, with losses accelerating, the benchmark S&P/ASX200 index was down 216.3 points, or 5.4 per cent, to 3769.8, while the All Ordinaries index slumped 224 points, or 5.5 per cent, to 3832.7.

Blue chip stocks such as Rio Tinto shed 6.3 per cent, investment bank Macquarie Group dropped 6.5 per cent and Woodside Petroleum gave up 9 per cent as global oil prices plunged.

The local slump adds to the $135 billion lost since last Tuesday, before today. The Australian market is now down more than 20 per cent from its recent peak in April, which is the usual definition of a bear market.

The dollar joined the rout, sinking as low as 99.98 US cents, down from $US1.0221 late in New York, as investors bet on a rate cut at the RBA's next meeting early September. The Aussie has lost more than 9 per cent in little over a week, quashing any thought that it might be a new safe haven.

Other regional markets opened sharply lower too, with Japan's Nikkei index losing 3.6 per cent, or 324.08 points, to 8773.48

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Trillions wiped off globally

Global stocks took another pounding overnight as worries over the downgrade of America's credit rating sparked a massive rout in the US and Europe.

A total of $US2.5 trillion was wiped off global markets yesterday, matching the total lost in last week's four-day slide. For the first time since at least 1996, all 500 of the companies on Wall Street's S&P500 share index fell.

"This is fear and panic," Don Wordell, a fund manager for RidgeWorth Capital Management, said. "I don't feel like the economy is falling off as quick as the stockmarket is.''

The panicked flight-to-safety pushed gold to the latest in a string of record peaks, boosted the Swiss franc and the yen and lifted Japanese government bonds and, ironically, US treasuries - the asset directly affected by the downgrade.

"Market players are seeking emergency refuge and fleeing to safe assets," a customer trader at a major Japanese bank in Tokyo said. "In the money market, where there is heightened demand for dollars, dollar lenders are running away."

Energy deep in the red

Locally, energy stocks were hit particularly hard at the open, down 5.9 per cent. Industrials and materials stocks also were well into red figures, down 5 per cent and 3.7 per cent, respectively.

Macquarie Private Wealth associate director Lucinda Chan said the worry on the market was the prospect of weak US and European economies hitting Australia's key export markets in Asia.

"It is all about us being interconnected in so many different ways these days,'' Ms Chan said. "The concern now is whether there will be a double-dip in the US market, and secondly, the European situation is still pretty dire.''

NAB today announced quarterly cash earnings of $1.4 billion but warned of subdued credit growth in all of its key markets, while CBA slashed its fixed mortgage rate fuelling market expectations of an official rate cut and sending the local currency lower.

NAB was down 3.78 per cent, or 79 cents, at $20.11.

Ms Chan said that, for many market players, the events of 2008-09 were fresh in traders' minds.

"You have to remember, [2008-09] was not so long ago, so it is very clear in people's minds what happened then and they don't want to get caught out," Ms Chan said. "Margin calls are pretty heavy in this market, as well."

Newcrest Mining, one of the world's biggest goldminers, bucked the trend to rise 0.9 per cent as investors pushed gold to record highs amid a flight to safe haven assets.

Local companies vulnerable

Stocks around the world have plunged in the past two weeks on concern the US, the world’s largest economy, may enter a recession and as Europe’s debt crisis intensified.

Australia’s benchmark gauge, with a 28 per cent weighting in raw-material producers, may extend losses should global growth continue to weaken, according to AMP Capital.

Groups of energy and raw-material producers in the Australian equity benchmark have fallen more than 22 per cent through yesterday since the S&P/ASX 200’s losses began to accelerate in April.

‘‘The risk of a global recession makes the earnings of Australian companies vulnerable,’’ said Nader Naeimi, a strategist for AMP Capital Investors. ‘‘If the global risks intensify, it doesn’t matter whether the market looks cheap.’’

US shares plunged overnight, taking the S&P 500 down more than 6 per cent on growing fears of a recession, exacerbated by the loss of the country's pristine triple-A credit rating. Panicked selling on heavy volume resulted in the S&P 500's worst day since December 2008, with every share in the benchmark index ending in negative territory.

The Dow Jones Industrial Average closed at a new 10-month low after posting the index's steepest one-day drop since 2008.




The present positions with gold (at yet another record) and the NZ dollar are as follows: