$80b wiped off market as investors spooked

A SIX-DAY losing streak has wiped almost $80 billion off the Australian sharemarket, as Europe's debt woes continue to rattle investors.

By InvestSMART · 26 Nov 2011

By InvestSMART ·
26 Nov 2011

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A SIX-DAY losing streak has wiped almost $80 billion off the Australian sharemarket, as Europe's debt woes continue to rattle investors.

The benchmark S&P/ASX 200 Index fell 59.4 points, or 1.5 per cent, to 3984.3, under the 4000 point mark for the first time since October 5.

Investors grew impatient after the German Chancellor, Angela Merkel, again ruled out joint euro borrowing.

A director at E. L. & C. Baillieu Stockbroking, Richard Morrow, said Australian shares were operating in an "incredibly weak" global setting.

Mr Morrow said investors were clinging to bad news to justify selling their stocks. "The mood is negative at the moment, all news is bad."

He said national turnover was inflated by the expiry of exchange traded options, and the market was much less active than it appeared.

Mr Morrow said the US market would open lower after the Thanksgiving holiday, but it was unlikely to impact the local market until Tuesday. "There won't be many participants in the US market, most people would have taken the sensible option and gone on holiday for the long weekend."

Meanwhile, the Australian dollar is headed for its fourth consecutive week of declines as Europe's debt woes hit investor confidence.

National Australia Bank's head of research, Peter Jolly, said the currency was down more than US3? for the week amid concerns Europe's financial crisis will intensify. It has dropped about US10? in a month, and closed in Sydney yesterday at US96.95?, from US97.09? on Thursday.

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Frequently Asked Questions about this Article…

What caused nearly $80 billion to be wiped off the Australian sharemarket?

A six-day losing streak driven by Europe’s ongoing debt worries and negative investor sentiment hit the Australian sharemarket. Investors reacted to news such as German Chancellor Angela Merkel ruling out joint euro borrowing, which rattled markets and prompted widespread selling.

How did the S&P/ASX 200 Index perform during the sell-off?

The S&P/ASX 200 fell 59.4 points, or about 1.5%, to 3,984.3 — dropping under the 4,000-point mark for the first time since October 5, according to the article.

How are Europe’s debt worries affecting investor confidence and the Australian dollar?

Europe’s debt concerns dented investor confidence, contributing to a weaker market mood and putting downward pressure on the Australian dollar. The currency was headed for its fourth straight week of declines and closed in Sydney at around US96.95 cents (from US97.09 cents on Thursday), per National Australia Bank’s head of research Peter Jolly.

What did Richard Morrow from E. L. & C. Baillieu say about current market conditions?

Richard Morrow described Australian shares as operating in an “incredibly weak” global setting. He said the mood was negative, with investors clinging to bad news to justify selling, and he noted that reported turnover was inflated by the expiry of exchange traded options.

Why did national market turnover look higher than actual activity?

Turnover was inflated by the expiry of exchange traded options, which can temporarily increase trading volume and make the market appear more active than it really is, according to the article.

Will a lower US market after Thanksgiving immediately affect the local Australian market?

Richard Morrow suggested the US market might open lower after the Thanksgiving holiday, but he expected it was unlikely to significantly impact the Australian market until the following Tuesday because many US participants would be on holiday.

Was the ASX 200 falling below 4,000 unusual?

Yes — the S&P/ASX 200 slipping below 4,000 was notable because it was the first time the index had been under that level since October 5, highlighting the scale of the recent sell-off.

What key factors should everyday investors watch when markets turn negative like this?

Based on the article, everyday investors should note that global developments (such as Europe’s debt crisis and political decisions like Merkel ruling out joint euro borrowing), short-term technical events (like exchange traded options expiry), and low participation periods (US holidays) can amplify market moves and sentiment-driven selling.