China credit crunch fears sent the Australian stock market spiraling almost 1.5% lower, with investors fleeing materials as China urged its banks to control credit expansion risks and declared liquidity in its financial system was at “a reasonable level”.
At 1615 AEST official market close, the benchmark S&P/ASX200 index fell 1.47% to 4,669.1 points, while the broader All Ordinaries index shed 1.54% to 4,651.1 points.
China’s growing liquidity crisis has been drowned out by the frenzy over the US Federal Reserve’s taper talk but spiking inter-bank rates have catapulted it to the forefront of markets’ concerns.
The People’s Bank of China edict on Monday was its first official comment since China’s libor rate hit the highest levels since 2003 last week.
IG market analyst Evan Lucas said the Chinese central bank could be starting to change its hawkish stance for the first time since September last year, with some reports suggesting it might be looking to fine tune monetary policy .
“Some are suggesting that the current state of affairs in China is very similar to that seen in the US pre-GFC,” Mr Lucas said.
“Leverage was cheap and easy, investors and business leaders alike snapped up credit with glee and high leverage levels were king – then it collapsed.
"Is China in a similar state of affairs?”
If the ASX was to find its feet again this year, cyclical stocks would need positive leads from China, he said.
Resources stocks led the broader market lower, with the major miners both firmly in the red.
Rio Tinto declined 2.13% to $51.54, while BHP Billiton slipped 3.39% to $31.35.
Fortescue Metals fell 4.26% to $2.92.
Whitehaven Coal lost 3.4% to $2.27, while Newcrest tumbled 7.92% to $9.53.
In the energy sector, Santos retreated 2.37% to $12.37, Oil Search shed 0.88% to $7.86 and Woodside decreased 3.49% to $34.26.
In equities news, Metcash released its full-year results, which showed a lift in net profit and revenue.
In Australia, the market on Friday suffered a second straight day of losses, to finish the week 1.1% lower.
The benchmark S&P/ASX200 index was down 19.6 points, or 0.41%, at 4,738.8 points, while the broader All Ordinaries index was down 20.1 points, or 0.42%, to 4,723.8 points.