MORE THAN $27 billion was wiped off the sharemarket yesterday in a brutal day of trading after investors reacted severely to news of a big political left turn in Europe at the weekend, and weak US employment data for April.
It was the biggest one-day fall on the local bourse in 4? months. Ten-year government bonds hit a 50-year low and the dollar lost more than US1?.
Uncertainty rattled sentiment as stockmarkets reacted with alarm to the Socialist candidate Francois Hollande's victory in France's presidential election and the routing of Greece's two-party coalition, which had imposed harsh austerity measures in return for an international bailout.
There are new concerns about the eurozone's austerity drive, threatening a fragile political consensus that has kept Europe's currency bloc intact throughout more than two years of crisis.
Resource and energy stocks were hit hard, with BHP Billiton falling by $1.46 to $34.57, and Rio Tinto losing $2.91 to $62.
The major banks all lost ground but were not hit as badly, with the financial sector outperforming the broader market, falling by 1.4 per cent.
Commonwealth Bank fell by 56? to $52.06 ANZ fell by 34? to $23.10 NAB lost 43? to $24.71 and Westpac fell 19? to $22.72.
Macquarie Bank lost $1.45 to close at $27.36. Telstra dropped 5? to $3.56. Overall, the benchmark S&P/ASX200 index fell by 94.7 points, or 2.15 per cent, to 4301.3. The broader All Ordinaries index was down by 97.8 points, or 2.19 per cent, at 4361.6.
US employment data contributed to the unease after only 115,000 new jobs were created in April, fewer than the 165,000 new jobs created in March, sparking fears of a slowdown in the world's biggest economy.
"You could see the focus of flows was going into income securities as a proxy for bonds, and then the stocks which are cyclical, or perceived to be growth stocks, were getting hit hard," the director of Clime Investment Management, John Abernethy, said.
A string of positive local data failed to calm investors. Retail sales rose by the most in 11 months in April. After adjusting for inflation, retail trade was up by 1.8 per cent in the March quarter, the biggest gain in almost three years.
Residential building approvals rose by 7.4 per cent to 11,501 units in March, compared to a downwardly revised 10,710 units in February. In the year to March, building approvals were down by 15 per cent.
That news failed to give the dollar a boost, with the currency falling by more than US1?, trading at US101.53? at the close, down from US102.64? on Friday.
"It's symptomatic of the mood of the market," a senior Westpac currency strategist, Sean Callow, said.
Despite investors' concerns, fund managers said yesterday was a day to buy stocks.
"We are seeing opportunities for oversold stocks," ATI Asset Management's head of research, David Liu, said. "We'd like to think that the fundamentals remain intact for the majority of Australian stocks.
"These types of issues impact sentiment rather than the fundamentals of companies, so we've probably been net buyers today."
ANZ's senior economist Shane Lee said the bond market had rallied as traders took to safe-haven assets.
On the local market, the explosives supplier Orica was down by 14? at $26.40, after chemical leaks at its ammonia plant near Newcastle contributed to a 4 per cent drop in the company's first-half net profit.
Whitehaven Coal was 31? lower at $4.60 after it launched a $172 million offer for the NSW explorer Coalworks. Coalworks gained 14? to close at 99.5?.
The building products supplier Alesco rose by 6? to close at $2.10 as it urged its shareholders to take no action on a $188 million takeover offer by the Dulux Group until it has been given further details of the offer.
Leighton Holdings' shares were down by 71?, or 3.56 per cent, at $19.25, after the completion date for Brisbane's Airport Link toll road was pushed back by almost two months.
Frequently Asked Questions about this Article…
Why did the Australian sharemarket fall more than $27 billion in one day?
The sell-off was driven by global political and economic uncertainty — notably the surprise left‑wing election result in France and setbacks in Greece that raised doubts about the eurozone's austerity consensus — combined with weaker‑than‑expected US jobs data for April. Those headlines pushed investors toward safe‑haven assets, hurting sentiment on the ASX and wiping more than $27 billion off the market.
Which sectors and stocks were hit hardest during the market decline?
Resource and energy stocks were among the hardest hit: BHP Billiton fell by $1.46 to $34.57 and Rio Tinto lost $2.91 to $62. Cyclical and growth‑perceived stocks also suffered, while the major banks fell but outperformed the broader market. Telstra also dropped (around 5% to $3.56).
How did big Australian banks perform and what did that mean for investors?
Major banks fell in price but not as sharply as some resource names. The financial sector outperformed the broader market, suggesting investors saw banks as relatively more defensive on the day — though all the big banks (Commonwealth Bank, ANZ, NAB, Westpac, Macquarie) recorded declines and closed lower.
What happened to bonds and the Australian dollar during the sell‑off?
Ten‑year government bond yields moved sharply as traders sought safe havens, with yields described as hitting a 50‑year low. The Australian dollar fell more than one U.S. cent, trading around US101.53¢ at the close (down from about US102.64¢ on the prior day).
Should everyday investors view the drop as a buying opportunity?
Some fund managers in the article said the day offered opportunities to buy oversold stocks and that the sell‑off reflected sentiment rather than company fundamentals. However, that view in the article comes from fund managers’ commentary — everyday investors should consider their own risk profile and do further research before acting.
Were there any company‑specific events that influenced stock moves?
Yes. Orica fell after chemical leaks at its ammonia plant contributed to a 4% drop in first‑half net profit. Whitehaven Coal dropped after launching a $172 million bid for Coalworks (which rose). Alesco rose after urging shareholders to hold off on responding to a $188 million takeover offer from Dulux Group. Leighton Holdings fell after a completion date for the Brisbane Airport Link toll road was pushed back by nearly two months.
Did positive local economic data calm investors during the downturn?
No. Despite stronger local data — retail sales rose by the most in 11 months and residential building approvals climbed 7.4% in March — those positives failed to offset global worries and weak US employment numbers, so investor sentiment remained shaky.
How did US employment data affect global markets and Australian investors?
US payrolls increased by just 115,000 in April versus 165,000 in March, which raised concerns about a slowdown in the U.S. economy. That weaker‑than‑expected jobs print contributed to risk aversion globally, prompting flows into bonds and income securities and weighing on cyclical and growth stocks on the ASX.
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