Market slides as China adds to European fears

THE local market closed sharply lower with resources stocks hit hard, amid renewed pessimism over Europe's ability to manage its debt crisis.

By InvestSMART · 19 Oct 2011

By InvestSMART ·
19 Oct 2011

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THE local market closed sharply lower with resources stocks hit hard, amid renewed pessimism over Europe's ability to manage its debt crisis.

Concern about weaker Chinese growth figures also dragged the index down, helping to reverse Monday's strong gains.

At the close, the benchmark S&P/ASX 200 index was down 88.5 points, or 2.07 per cent, at 4,186.9, and the All Ordinaries had shed 88.4 points, or 2.04 per cent, at 4,249.5.

The losses were broad-based and made on light volumes, Stuart Smith, a senior client adviser at Bell Potter Securities, said.

Markets across Asia followed European and US stock exchanges lower after Germany warned that a European Union summit this weekend might not produce a resolution to the euro zone debt crisis.

The losses were extended after China reported third-quarter growth of 9.1 per cent - down from 9.5 per cent in the June quarter and its slowest quarterly growth in two years.

A warning overnight from a New York hedge fund manager, Jim Chanos, that China was heading for a hard economic landing also weighed on markets.

The notes of the Reserve Bank of Australia's October 4 board meeting, published yesterday, left the door open for interest rate cuts, but they failed to lift the mood of investors.

Rio Tinto was among the stocks hardest hit yesterday, slumping $3.70, or 5.29 per cent, to $66.25, and BHP Billiton lost $1.25 or 3.32 per cent, at $36.40.

Fortescue Metals dived 47?, or 9.2 per cent, to $4.64, and Woodside Petroleum slipped 39? to $34.98.

Financials were also sold off, with Bendigo and Adelaide Bank, the only institution not to lose ground, finishing steady at $9.05.

NAB led the major banks lower, closing down 52? at $24.23. Westpac lost 41? to $21.58, Commonwealth Bank fell 86? to $47.45, and ANZ was down 29? at $21.07.

Telstra was one of the few bright spots on the market, gaining 2? to $3.13 after its shareholders approved the telco's deal with the federal government over the national broadband network.

Qantas fell 8?, or 5.19 per cent, to $1.46 after it said it would ground another two aircraft and cancel a further 80 domestic flights over the next month, in response to continuing industrial action by its engineers.

Market turnover was 1.69 billion shares worth $4.17 billion.

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Frequently Asked Questions about this Article…

Why did the ASX fall sharply today and how big was the drop?

The local market fell as renewed pessimism over Europe’s ability to manage its debt crisis combined with weaker Chinese growth to drag stocks lower. The benchmark S&P/ASX 200 closed down 88.5 points (about 2.07%) at 4,186.9, and the All Ordinaries fell 88.4 points (about 2.04%) to 4,249.5.

Which sectors and stocks were hit hardest in the downturn?

Resources stocks were the worst affected, with major miners and energy names taking heavy losses. Rio Tinto slid $3.70 (about 5.29%) to $66.25 and BHP Billiton lost $1.25 (about 3.32%) to $36.40. Fortescue Metals tumbled to $4.64 and Woodside Petroleum slipped to $34.98. Financials were also sold off, though some institutions fared better than others.

How did the big Australian banks perform during the sell‑off?

The major banks generally fell. NAB led the big banks lower, closing at $24.23; Westpac finished at $21.58; Commonwealth Bank closed at $47.45; and ANZ was at $21.07. By contrast, Bendigo and Adelaide Bank was one of the few financials to finish steady at $9.05.

What role did China’s latest growth figures play in the market fall?

China reported third‑quarter growth of 9.1%, down from 9.5% in the previous quarter and its slowest quarterly growth in two years. That weaker reading, along with warnings from some commentators about a potential hard landing, weighed on investor sentiment and extended losses across Asian and Australian markets.

Did the Reserve Bank of Australia (RBA) influence the market with its recent notes?

The RBA’s October 4 board meeting minutes left the door open to interest rate cuts, but that signal did not lift investor sentiment in this session, and markets still closed sharply lower.

How did Telstra react to its shareholders approving the NBN deal?

Telstra was one of the few bright spots: its shares gained about 2% to $3.13 after shareholders approved the telco’s deal with the federal government over the national broadband network (NBN).

Why did Qantas shares fall and what operational changes did it announce?

Qantas shares fell after the airline said it would ground another two aircraft and cancel around 80 domestic flights over the next month in response to continuing industrial action by its engineers. Qantas closed at $1.46.

What was the trading volume and value on the day of the sell‑off?

Market turnover was 1.69 billion shares for the day, with trades worth approximately $4.17 billion.