European debt crisis sparks local sell-off

THE local sharemarket fell more than 3.5 per cent yesterday on the worst trading day in a month.

By InvestSMART · 13 Sep 2011

By InvestSMART ·
13 Sep 2011

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THE local sharemarket fell more than 3.5 per cent yesterday on the worst trading day in a month.

The bourse opened almost 3 per cent lower following weak offshore leads at the end of last week, as global investors feared Greece would default on its mounting debts.

The market held losses in early trade, despite the Bureau of Statistics announcing the Australian economy had posted a trade surplus for the fifth straight month of $1.826 billion in July, as mining exports bolstered the balance sheet.

The benchmark S&P/ASX 200 index closed down 156.2 points, or 3.72 per cent, at 4038.5. The broader All Ordinaries fell 152.3 points, or 3.56 per cent, to 4125.1.

The last time the market dipped to this level was in August, when the leading index fell below 4000 for the first time in a year.

CMC Markets analyst Ric Spooner said while European debts were well disclosed, making the situation clearer than during the global financial crisis, investors were still uncertain as to how it would play out.

"The lack of confidence among businesses, consumers and investors may have the effect of further weakening economic growth, which in turn feeds into greater credit risk," he said.

The worst performing stock in the top 100 was Cochlear, which plunged 20.3 per cent, or $14.68, to $57.50, after it announced it would recall one of its hearing implant ranges. The implant manufacturer led a 5.1 per cent drop in the healthcare sector.

Insurance company Suncorp also suffered heavy lossses, falling 5.7 per cent, or 47?, to $7.85.

The finance sector fell 3.9 per cent, with losses across all the banks. Westpac led the declines, closing 4.6 per cent down at $19.20.

The big miners fell on the back of lower offshore commodity prices, with BHP Billiton ending the day $1.46, or 3.9 per cent, down at $36.45. Fellow miner Rio Tinto closed $3.05 down at $68.20.

Gold stocks were among the few winners on the day, with AngloGold Ashanti rising 6.38 per cent to $9.17. Australia's biggest goldminer, Newcrest, was the best performer in the top 20, slipping just 6? to $39.80.

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Frequently Asked Questions about this Article…

Why did the Australian share market fall more than 3.5% on that trading day?

The local market dropped after weak offshore leads and investor fears about the European debt crisis—especially concerns Greece might default on mounting debts. Despite a positive domestic trade report, global risk aversion drove selling, leaving the S&P/ASX 200 down 156.2 points (3.72%) at 4,038.5 and the All Ordinaries down 152.3 points (3.56%) at 4,125.1.

Did Australia’s trade surplus help stop the market sell-off?

No. The Bureau of Statistics reported a trade surplus of $1.826 billion in July—the fifth straight month of surplus thanks to mining exports—but the market still opened sharply lower because global concerns about Europe and investor confidence outweighed the positive trade figures.

Which sectors were hit hardest in the sell-off and why?

The healthcare, finance and mining sectors were among those hardest hit. Healthcare fell after Cochlear announced a product recall; the finance sector slid about 3.9% with broad bank losses; and miners fell on lower offshore commodity prices that pressured major resources stocks.

What happened to Cochlear shares and how did that affect the healthcare sector?

Cochlear plunged 20.3%—a $14.68 fall to $57.50—after announcing it would recall one of its hearing implant ranges. That company-specific news led the healthcare sector to drop about 5.1% for the day.

How were the big banks affected during the sell-off?

Banks recorded broad losses as part of a weaker finance sector. Westpac led the bank declines, closing 4.6% down at $19.20, contributing significantly to the sector’s overall drop.

How did major miners like BHP Billiton and Rio Tinto perform and why?

Major miners fell on the day due to lower offshore commodity prices. BHP Billiton ended down $1.46 (about 3.9%) at $36.45, and Rio Tinto closed $3.05 lower at $68.20.

Were any stocks or sectors winners when the market fell?

Yes—gold stocks were among the few winners that day. AngloGold Ashanti rose 6.38% to $9.17, and Newcrest was noted as the best performer in the top 20, slipping only slightly to $39.80.

What market signals should everyday investors monitor after a sell-off like this?

Based on the article, everyday investors should monitor developments in the European debt situation (including any Greece default news), offshore commodity prices that affect miners, company-specific risk events such as product recalls, and broader confidence indicators because reduced business and consumer confidence can weaken economic growth and raise credit risk.