Spanish fears give investors the jitters

INVESTORS wiped $21 billion off the value of Australian shares yesterday after a fresh outbreak of fears for the eurozone's future led to the sharpest market slump in almost two months.

By InvestSMART · 24 Jul 2012

By InvestSMART ·
24 Jul 2012

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INVESTORS wiped $21 billion off the value of Australian shares yesterday after a fresh outbreak of fears for the eurozone's future led to the sharpest market slump in almost two months.

The S&P/ASX 200 Index fell 70.2 points, or 1.7 per cent, to 4128.9 and the dollar shed US1?, as sentiment soured in response to a surge in Spain's borrowing costs.

Government bonds issued by Spain the fourth-biggest economy in the eurozone had last night climbed to a record high above 7.5 per cent, raising fears the country may need a full-scale bailout.

Last month Spain's banks were thrown a ?100 billion lifeline by eurozone members, but there are worries that if current conditions remain, the country's government will be locked out of financial markets.

The surge sent fears rippling around the world, with Australian mining stocks sold off heavily and the dollar falling to US103.12?, down from US104.09? on Friday.

Octa Phillip director of equities Andrew Sekely said the market had suffered one of its biggest one-day falls in recent months due to debt fears in Europe and a local report about the end of Australia's mining boom.

"It's a combination of overseas influences and negative comments coming out of Europe and the local press," Mr Sekely said.

US stocks fell about 1 per cent on Friday, following renewed concerns about Spain after its borrowing costs rose past the mark that is considered too high to be sustainable.

Just as European ministers approved a rescue of Spain's troubled banks, the region of Valencia revealed it would become the first to tap a new fund designed to provide liquidity to the country's 17 semi-autonomous regions.

And locally, a Deloitte Access Economics report found the mining boom was about to peak and an economic slowdown would be inevitable.

Woolworths was one of the only local stocks to buck the downward trend, beating expectations to lift its sales by 4.7 per cent to $56.7 billion in the 2012 financial year.

Woolworths shares closed 27? higher at $27.89.

Shares in the big miners were all substantially lower after the Deloitte report came out.

BHP Billiton was 81? lower at $30.55, Rio Tinto was $1.87 lower at $51.52 and Fortescue was down 31? at $4.05.

The four major banks were all weaker.

Westpac was 30? lower at $22.55, ANZ lost 25? to $22.82, National Australia Bank was down 30? to $23.69 and Commonwealth Bank 38? lower at $54.74.

The price of gold in Sydney was $US1576.35 an ounce, down $US9.64 on Friday's close of $US1585.99.

National turnover was 1.36 billion securities worth $3.2 billion, with 245 stocks up, 653 down and 347 unchanged. With AAP

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Frequently Asked Questions about this Article…

What caused the sharp ASX200 fall and the $21 billion wipeout in Australian shares?

The sell‑off was triggered by renewed fears about the eurozone after Spain's borrowing costs surged, pushing Spanish government bond yields above 7.5% and stoking bailout concerns. That overseas debt fear, combined with local negative commentary about the end of Australia's mining boom, led to a 70.2‑point (about 1.7%) drop in the S&P/ASX200 to 4,128.9 and roughly $21 billion wiped off the value of Australian shares.

How did Spain's rising borrowing costs ripple through global markets and affect Australian investors?

Spain's jump in borrowing costs raised worries the country might need a full bailout, despite a €100 billion rescue for its banks. The surge dented global sentiment: US stocks fell about 1% and Australian markets sold off heavily, particularly in resources and banks. The article also notes the Australian dollar lost ground against the US dollar as investors reacted to the European debt jitters.

Which Australian sectors and stocks were hit hardest by the market slump?

Mining stocks and the big four banks were among the hardest hit. The article reports big miners were substantially lower, with BHP Billiton at $30.55, Rio Tinto at $51.52 and Fortescue at $4.05. The four major banks also fell, with Westpac at $22.55, ANZ $22.82, National Australia Bank $23.69 and Commonwealth Bank $54.74.

Were there any Australian companies that performed well despite the market downturn?

Yes. Woolworths bucked the downward trend: it beat expectations by lifting sales 4.7% to $56.7 billion for the 2012 financial year, and its shares closed higher at $27.89 on the day reported.

What happened to gold prices and the Australian dollar during the sell‑off?

Gold in Sydney was reported at US$1,576.35 an ounce, down US$9.64 from the previous close of US$1,585.99. The Australian dollar also weakened against the US dollar as investors fled riskier assets amid the European debt concerns (the article reports it fell from around US104.09 to US103.12 in the day's trading).

What local economic news added to investor nervousness about Australian stocks?

A Deloitte Access Economics report warned the mining boom was about to peak and an economic slowdown would be inevitable. That local report, combined with overseas debt fears, contributed to the heavy selling in mining stocks and broader market pessimism described in the article.

How busy was trading on the day of the slump and what was the market breadth?

National turnover was 1.36 billion securities worth $3.2 billion. Market breadth was negative: 245 stocks rose, 653 fell and 347 were unchanged on the day covered by the article.

What developments should everyday investors monitor after this kind of Europe‑driven market shock?

Based on the article, investors should watch Spanish bond yields and any eurozone rescue measures (for example, bank bailouts or regional liquidity funds), updates on the health of Spain's banks and regions such as Valencia, local economic reports about the mining sector, and corporate results (Woolworths’ sales beat was cited as a positive exception). These factors can influence sentiment and sector performance after a Europe‑driven shock.