China, French banks take toll on market

THE sharemarket closed more than 1 per cent lower yesterday, with broad-based losses across almost all sectors on speculation China was unlikely to inject capital into debt-ridden European economies.

By InvestSMART · 15 Sep 2011

By InvestSMART ·
15 Sep 2011

Comments

THE sharemarket closed more than 1 per cent lower yesterday, with broad-based losses across almost all sectors on speculation China was unlikely to inject capital into debt-ridden European economies.

The market opened about half a per cent higher, but had shed some of its early gains by noon as cautious investors showed little appetite for shares in an uncertain global market.

That was despite a study by the Westpac-Melbourne Institute showing local consumer sentiment had rebounded.

Shares then fell after Moody's ratings agency said it had downgraded by one notch top French banks Societe Generale and Credit Agricole while leaving BNP Paribas on negative watch.

The benchmark S&P/ASX 200 Index closed down 66.9 points, or 1.6 per cent, at 4005.8.

Shaw Stockbroking senior dealer Jamie Spiteri said local shares had fallen in line with other Asian markets and the US futures market on the reports that ratings agency Moody's downgraded European banks because of their exposure to Greece.

Chinese Premier Wen Jiabao's promise to increase the country's investment in the euro zone was also tempered, making a bailout seem less likely to investors, Mr Spiteri said.

"An injection of [Chinese] capital will only come if European countries take the tough decisions in cutting deficits and looking to create jobs rather than just rely on China to bail them out," he said.

Macquarie Private Wealth division director Lucinda Chan said lacklustre demand for Italian bonds at an auction on Tuesday was indicative of the mood of the market.

In local trade, healthcare stocks took the brunt of the downward trend, losing 3 per cent. The sector was led lower by Cochlear, which was the worst performer on the S&P/ASX 100, losing 14.6 per cent to $51.30, with investors still reeling two days after the company announced it was recalling a range of hearing implants.

Financials lost 1.9 per cent, with all the big retail banks falling at the close. Commonwealth Bank shed 2.5 per cent, Westpac lost 2 per cent, National Australia Bank fell 3 per cent and ANZ slumped 1.6 per cent.

The telecoms sector rose, led by Telstra, up 2? to $3.02.

The best performer on the S&P/ASX 100 Index was iron ore producer Atlas Iron, up 5?, or 1.47 per cent, at $3.46.

On the ASX 24, the September share price index futures contract fell 74 points to 4007 points, with 121,402 contracts traded.

The closing price of gold in Sydney was at $US1821.79 an ounce, down $US4.82 from Tuesday.

Go to Google News, then click "Follow" button to add us.

Share this article and show your support

Frequently Asked Questions about this Article…

Why did the ASX 200 fall more than 1% on that trading day?

The S&P/ASX 200 closed down 66.9 points, or 1.6%, at 4005.8 after broad-based losses driven by concerns about European banks and speculation that China was unlikely to inject capital into debt‑ridden European economies. Moody's downgrades of top French banks and general risk-off sentiment in Asian and US futures markets also contributed to the sell‑off.

How did Moody's downgrades of European banks affect Australian shares?

Moody's downgraded Societe Generale and Credit Agricole by one notch and placed BNP Paribas on negative watch, which sparked risk aversion across Asian markets. According to market dealers cited in the article, Australian shares fell in line with those overseas markets because the downgrades highlighted European banks' exposure to Greek debt.

What role did China’s stance on euro‑zone investment play in market sentiment?

Speculation that China was unlikely to inject capital into euro‑zone economies weighed on investor confidence. The article notes Chinese Premier Wen Jiabao’s promise to increase investment was tempered, making a large bailout seem less likely and adding to downward pressure on global and local markets.

Which sectors and companies were hit hardest, and why should everyday investors care?

Healthcare stocks led local losses, down about 3%, with Cochlear the worst performer—its shares plunged 14.6% to $51.30 after the company announced a recall of a range of hearing implants. Financials also fell about 1.9%, with the big retail banks (Commonwealth Bank, Westpac, NAB, ANZ) all closing lower. These moves matter to everyday investors because sector‑wide news and company‑specific events can significantly affect portfolio returns and volatility.

Were there any sectors or companies that outperformed during the sell‑off?

Yes. The telecoms sector rose, led by Telstra (which closed at $3.02), and the best performer on the S&P/ASX 100 was iron ore producer Atlas Iron, up 1.47% to $3.46. Defensive or commodity‑exposed names can sometimes outperform during broad market weakness.

What did commentary about European bond auctions indicate for markets?

Macquarie Private Wealth noted lacklustre demand for Italian bonds at a recent auction, which the article says was indicative of the cautious market mood. Poor demand for sovereign debt in Europe added to concerns about contagion and bank exposure, reinforcing global risk aversion.

How did market derivatives and precious metals trade that day?

On the ASX24, the September share price index futures contract fell 74 points to 4007 with 121,402 contracts traded, reflecting expectations for lower cash markets. Gold closed in Sydney at US$1,821.79 an ounce, down US$4.82 from the prior session.

What short‑term takeaway should everyday investors get from this market update?

The update highlights how global credit concerns (Moody’s downgrades, European debt uncertainty) and company‑specific news (like Cochlear's recall) can quickly drive broad market moves. For everyday investors, it’s a reminder that global events and sector‑level developments can impact portfolios, underscoring the importance of diversification and staying informed about both macro and company news.