Was the Aussie sell-off a concerted action, a.k.a wayo? Lot of head scratching amid $25bn rout
Matthew Stevens | July 04, 2008
COME again?
We have oil prices running at $US145 a barrel, record iron ore prices built on the supposedly solid sands of overwhelming demand from China and India, copper prices skipping through the indicative $US4 a pound threshold after news of a strike in Peru, and the investors in Australian resources stocks do what?
Message 24727564
US falls spook market into $29 billion sell-off
July 4, 2008
FEARFUL investors shred $29 billion off the value of Australian shares during a feverish sell-off.
The market got its first jolt of fear on the news that a late sell-off in US stocks had sliced 1.5% off the Dow Jones Industrial Average, dashing hopes that it was on the verge of turning higher.
The Dow Jones and Nasdaq Composite Index have now dropped 20% since October, meaning Wall Street is now officially in a bear market.
The prospect of US vehicle maker GM going into bankruptcy, raised by a Merrill Lynch analyst, brought concerns that a wider slowdown might be on the cards for global markets. Such a recession could lower demand for manufactured products and thus for minerals.
Australian resource companies, stalwarts of themarket, got hammered, with the sector falling 6.1% in one day.
The oil price, however, continued to climb. After closing in New York with a $US2.60 gain at $US143.57, it reached $US145.43 last night.
An additional concern for Australian investors is a draft report to be released today by Professor Ross Garnaut, the Government's adviser on climate change. Its recommendations could increase the cost of doing business permanently as the Government works to get a grip on carbon emissions.
"Sentiment is driving this extensively," Intersuisse director Howard Elton said of the plunge below the psychologically important 5000 point on the benchmark S&P/ASX 200 Index. "There's a lot of pressure on share prices."
. Days after the Reserve Bank decided to keep rates on hold at 7.25%, evidence is mounting that the Australian economy is stalling, with businesses and consumers hurting. The scale of the downturn indicates that neither investors nor consumers will emerge unscathed.
Employees have seen superannuation funds drop by an average 6.4% in the year to June 30 for the worst results since 1992.
Profit downgrades are expected to increase, with Just Group providing one yesterday, showing that retailing, in particular, is suffering as business and households respond and cut spending.
"The market is being driven by higher oil prices, which are impacting on corporate profitability," said Peter Strachan, of StockAnalysis. "As energy prices rise, they're squeezing margins and pushing up costs."
Crude oil prices had "a flow-on effect in the economy in general, reducing retail sales and consumers' confidence", Mr Strachan said. "Businesses will be re-evaluating capital expenditure programs on the basis of higher costs, looking at potentially lower demand."
In June, 14 companies listed on the Australian Stock Exchange, less than half of the 38 listings in June 2007. The amount of capital raised has fallen, with only $5.2 billion raised in past month, 35% less than June of the previous year. The total cash changing hands last month, $133.9 billion, was 7% lower than the previous June, according to the ASX. The daily average value of trades also fell 7% to $6.7 billion. |
