China and Europe weigh on local trading

THE sharemarket continued to sink into the red yesterday, closing weaker for the fourth straight day amid concerns about China's manufacturing and the continuing European debt crisis.

By InvestSMART · 24 Nov 2011

By InvestSMART ·
24 Nov 2011

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THE sharemarket continued to sink into the red yesterday, closing weaker for the fourth straight day amid concerns about China's manufacturing and the continuing European debt crisis.

The benchmark S&P/ASX 200 Index slumped 82 points, or 2 per cent, to 4051.

News of Spain's borrowing costs hitting a 14-year high left a bitter taste in investors' mouths, resulting in the local sharemarket opening 0.4 per cent lower.

Austock Securities senior client adviser Michael Heffernan said the weight of Europe's debt woes had taken its toll on Australian banks. "Our banks have been hit particularly hard due to the continuing financial problems happening in Europe," he said.

"There is an expectation that our banks are going to have higher funding costs."

But he said the profitability of Australian companies was still strong, and movement in the market was spurred by fear.

US markets dropped after an announcement that gross domestic product grew at a 2 per cent annual rate in the July-September quarter.

But Mr Heffernan said GDP growth in the US was a "very good result", considering the current economic climate. A sharp fall in China's purchasing managers' index, a gauge of the nation's manufacturing activity, resulted in resources and financial stocks suffering significant losses of between 2 per cent and 3.5 per cent.

The preliminary HSBC purchasing managers' index sunk to 48 in November, its lowest since March 2009. A reading below 50 implies a contraction.

BHP Billiton fell $1.09, or 3.1 per cent, to $34.51, and Rio Tinto lost $2.20, or 3.4 per cent, to $62.30.

The big four banks all recorded losses.

National Australia Bank dropped 76?, or 3.3 per cent, to $22.37, while Westpac lost 53?, or 2.6 per cent, to $19.83. ANZ retreated 44?, or 2.3 per cent, to $19.10, and Commonwealth Bank closed $1.13 lower at $46.27.

The price of an ounce of gold was $US1707.91 at the 5pm close in Sydney, up $24.87 from Tuesday's close of $US1683.04.

As Qantas and its unions continued their industrial dispute, the airline's shares shed another 5.5?, or 3.5 per cent, to $1.515. Shares in Virgin also dropped by 0.5?, closing at 36.5?.

Shares in the wealth manager IOOF Holdings slumped 62?, or 10.4 per cent, to close at $5.37, the lowest since October 6.

National turnover was 1.99 billion shares worth $4.78 billion, with 17 shares falling for every two that gained.

The dollar dropped to a six-week low of US97.56? yesterday afternoon before closing at 97.60?.

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Frequently Asked Questions about this Article…

Why did the Australian sharemarket fall today and how much did the ASX 200 drop?

The article says the Australian sharemarket fell amid worries about China’s manufacturing slowdown and the continuing European debt crisis (including Spain’s borrowing costs). The benchmark S&P/ASX 200 slumped 82 points, or about 2%, to 4,051 and opened around 0.4% lower after news of Spain’s borrowing costs hitting a 14‑year high.

How did China’s purchasing managers’ index (PMI) affect Australian resources stocks like BHP and Rio Tinto?

A sharp fall in China’s HSBC PMI (the preliminary reading dropped to 48 in November, a contraction) weighed on Australian resources shares. According to the article, resources stocks fell between roughly 2% and 3.5% — BHP Billiton dropped $1.09 (about 3.1%) to $34.51 and Rio Tinto lost $2.20 (about 3.4%) to $62.30.

Why were Australian banks hit and how did the big four banks perform?

The article links the banks’ weakness to Europe’s debt problems and investor expectations of higher funding costs for Australian lenders. The big four all fell: National Australia Bank down about 3.3% to $22.37, Westpac down about 2.6% to $19.83, ANZ down about 2.3% to $19.10, and Commonwealth Bank down $1.13 to $46.27.

What happened to Qantas and Virgin shares during the industrial dispute?

The article reports Qantas shares fell in the latest trading session amid its ongoing industrial dispute, closing around $1.515 (about a 3.5% drop), while Virgin shares also slipped, down roughly 0.5% to about 36.5 cents.

How severe was the fall in IOOF Holdings shares and what does that mean for investors?

IOOF Holdings plunged sharply, falling about 10.4% to close at $5.37 — its lowest close since October 6. For everyday investors, the move signals stock‑specific weakness in that wealth manager on the day; the article notes broad market fear was a driver of trading moves.

What happened to gold and why might investors watch the gold price now?

Gold rose on the day: the article records the price at US$1,707.91 per ounce at the 5pm Sydney close, up US$24.87 from the prior close. Investors often watch gold as a safe‑haven asset when equity markets are volatile or when global growth concerns rise.

Did US economic data or other global news influence local markets?

Yes. US GDP grew at an annualised 2% in the July–September quarter, and markets reacted to that release. More broadly, the article highlights that European debt worries (notably Spain) and China’s slowing manufacturing activity combined to push local trading lower.

What was the market turnover and breadth on the trading day covered in the article?

National turnover was 1.99 billion shares worth about $4.78 billion. Market breadth was weak, with 17 shares falling for every two that gained, according to the article.