News from Korea adds to investor fears

BATTLE-WEARY investors were again hit by global headlines yesterday, this time from the Korean peninsula.

By InvestSMART · 20 Dec 2011

By InvestSMART ·
20 Dec 2011

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BATTLE-WEARY investors were again hit by global headlines yesterday, this time from the Korean peninsula.

The main Asian markets lost ground, with Japan's Nikkei 225 retreating 1.26 per cent and Hong Kong's Hang Seng slipping 1.18 per cent.

The Australian market was one of the worst performers, with the S&P/ASX 200 Index dropping

98.8 points, or 2.4 per cent, to 4060.4.

"Kim Jong Il's death is the latest spanner in the works," said IG Markets market strategist Stan Shamu. "Although a succession plan was already in place, change means uncertainty and uncertainty is not good for markets."

Even before news of the dictator's death reached the market, the week had got off to a poor start after the business commentator Alan Kohler said he would reduce his exposure to equities, fearing a looming panic selloff on the sharemarket.

"I don't know when it will happen and it is not a certainty that it will happen . . . but I think the risk is now such that you must take action," Mr Kohler wrote in his influential Week in View.

"On Monday I will be significantly reducing my already reduced exposure to equities, possibly to zero."

Woodside Petroleum dragged energy stocks lower on signs that work on a gas processing plant in Western Australia's north may not proceed. The company had already delayed making a decision on a $30 billion gas project in the state's Browse Basin so investors pummelled the stock, sending it down $1.06, or 3.4 per cent, to $30.24.

Mining giant BHP Billiton lost 87?, or 2.5 per cent, to $34.32, while Rio Tinto lost $1.60, or 2.6 per cent, to $60.20.

Billabong shares plunged 44.23 per cent after the company warned that its first-half profit could fall by as much as 26 per cent. The Australian surfwear manufacturer said earnings before interest, tax, depreciation and amortisation would be between $70 million and $75 million for the six months to December 31, down from $94.6 million on the previous corresponding period. Billabong shares closed down $1.61 at $2.03.

The big banks all lost ground, with the Commonwealth falling 84?, or 1.7 per cent, to $48.29, and Westpac down 46?, or 2.2 per cent, at $20.05.

The dollar lost almost half a US cent, ending the day on US99.24?, down from US99.70? on Friday.

European stocks fell at the start of trading last night, with markets reacting to developments in Europe's debt crisis, and the death of Kim Jong-Il.

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Frequently Asked Questions about this Article…

How did headlines from the Korean peninsula affect global markets?

News of developments on the Korean peninsula — including the death of Kim Jong Il — rattled investors and put markets under pressure. Asian indices fell (Japan’s Nikkei 225 retreated about 1.26% and Hong Kong’s Hang Seng slipped about 1.18%), European stocks opened lower, and commentators said the leadership change increased uncertainty for markets.

What happened to the Australian sharemarket (S&P/ASX 200) on the day of the news?

The S&P/ASX 200 was one of the worst performers, dropping 98.8 points, or about 2.4%, to finish at 4,060.4 as investors reacted to the international headlines and local company news.

Why did Woodside Petroleum shares fall and how much did they drop?

Woodside Petroleum shares fell after signs emerged that work on a gas processing plant in Western Australia’s north might not proceed and after the company delayed a decision on a $30 billion Browse Basin gas project. The stock fell $1.06, or roughly 3.4%, to $30.24.

How did major miners like BHP Billiton and Rio Tinto perform during the sell-off?

Mining stocks were down: BHP Billiton lost about 2.5% to $34.32, while Rio Tinto fell $1.60, or about 2.6%, to $60.20 as commodity and market headwinds weighed on resource names.

What caused Billabong’s share price plunge and what were its profit expectations?

Billabong warned that first-half EBITDA could fall to between $70 million and $75 million for the six months to December 31, down from $94.6 million a year earlier. The profit warning drove the stock down sharply — the shares plunged 44.23%, closing down $1.61 at $2.03.

How did the big Australian banks trade amid the market drop?

The major banks fell as part of the broader sell-off: the Commonwealth Bank was down about 1.7% to $48.29 and Westpac fell about 2.2% to $20.05 on the day covered in the article.

What happened to the Australian dollar and why were European markets affected?

The Australian dollar lost almost half a US cent, finishing the day at roughly US99.24 cents, down from US99.70 cents. European markets also opened lower, reacting both to developments in Europe’s debt crisis and to the uncertainty created by events on the Korean peninsula.

What were market commentators saying and how did commentary affect investor sentiment?

Commentators amplified investor caution: IG Markets strategist Stan Shamu said Kim Jong Il’s death added uncertainty that’s bad for markets, while business commentator Alan Kohler warned of a possible panic sell-off and said he would significantly reduce — possibly to zero — his equity exposure. Those public comments contributed to risk-off sentiment among everyday investors.