September quarter results worst since '08

THE world's sharemarkets suffered their worst quarterly result since the peak of the global financial crisis, posting double-digit percentage losses as the sovereign debt crisis in Europe and fears of a global slowdown overshadowed efforts by the US to pull out of its malaise.

By InvestSMART · 3 Oct 2011

By InvestSMART ·
3 Oct 2011

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Australia was caught up in the global sell-off, notching-up losses of 12.7 per cent during the quarter, pulling down superannuation returns.

The poor performance was driven by European markets, with London's FTSE down 13.7 per cent over the third quarter - its worst quarter in nearly a decade - and the DAX in Germany slumping 26 per cent.

In the US, spurred on by a heavy 2.2 per cent sell-down on Friday, the Dow Jones recorded a quarterly loss of 12.1 per cent, capping its worst quarterly loss since the end of 2008.

Investors globally dumped stocks during the September quarter, concerned that Europe's debt crisis was spreading out of control, threatening to hurt growth even across Asia's stronger economies.

"Europe sits precariously on the edge of a recession," AMP Capital's senior economist, Bob Cunneen, said. "Essentially, financial markets need to see a more convincing resolution of Europe's sovereign debt woes through a combination of a larger bailout fund, aggressive central bank buying of vulnerable debt and a recapitalisation of the European banking system."

Figures released on Friday showed annual inflation across the euro zone jumped unexpectedly to 3 per cent in September from 2.5 per cent in August creating a dilemma for the European Central Bank chief, Jean-Claude Trichet, who chairs his final policy meeting this week.

Mr Trichet must now make a difficult call on whether to reduce interest rates to face a weak economy despite rising prices. With firm hopes by investors that major central banks ease monetary policy in an effort to rekindle growth, inflation creeping up in the euro zone is sure to disappoint as it probably makes a rate cut from the ECB less likely.

The rising outlook for Europe's inflation comes on the heels of reports in the past week showing declining consumer confidence in Europe and evidence that much of the regional economy is slowing.

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Frequently Asked Questions about this Article…

What happened to global sharemarkets in the September quarter and why is it significant?

Global sharemarkets posted their worst quarterly result since the peak of the global financial crisis, with double-digit percentage losses. The sell-off was driven largely by the European sovereign debt crisis and fears of a global economic slowdown, which outweighed attempts by the US to recover.

How did the September quarter market sell-off affect Australian sharemarkets and superannuation returns?

Australia was caught up in the global sell-off, recording losses of 12.7% during the quarter. That drop pulled down superannuation returns for the period, according to the report.

Which major markets suffered the biggest losses in the September quarter?

European markets were hit hardest: London’s FTSE fell 13.7% over the third quarter — its worst quarter in nearly a decade — and Germany’s DAX slumped about 26%. In the US the Dow Jones lost 12.1% for the quarter, capped by a heavy 2.2% sell-down on a single Friday.

Why were investors dumping stocks during the September quarter?

Investors sold stocks amid growing concern that Europe’s sovereign debt crisis was spreading and could hurt global growth, even in stronger Asian economies. That fear of contagion led to broad risk-off behaviour across global markets.

What did AMP Capital’s senior economist say markets need to see to stabilise Europe’s debt crisis?

AMP Capital senior economist Bob Cunneen said financial markets need a more convincing resolution of Europe’s sovereign debt woes — including a larger bailout fund, aggressive central bank buying of vulnerable debt, and a recapitalisation of the European banking system.

How did euro zone inflation affect market sentiment and the European Central Bank’s choices?

Annual inflation in the euro zone unexpectedly jumped to 3% in September from 2.5% in August. That increase complicates the ECB’s decision-making — particularly for Jean-Claude Trichet at his final policy meeting — because higher inflation makes it harder for the ECB to justify a rate cut even as the economy weakens.

What were investors' expectations for central bank policy during the sell-off?

Investors hoped major central banks would ease monetary policy to rekindle growth. However, the creeping rise in euro zone inflation made a rate cut from the European Central Bank less likely, creating a policy dilemma.

What key developments should everyday investors watch after the September quarter rout?

According to the article, investors should monitor progress toward a clearer resolution of Europe’s sovereign debt issues (such as any increase in bailout funding), whether central banks step in to buy vulnerable debt, moves to recapitalise European banks, and upcoming inflation and policy decisions from the ECB.