Stocks add to losses on China data

THE sharemarket has lost ground for a fourth straight day, slipping below 4100 points yesterday after a sharp slowdown in Chinese imports fanned concerns about global growth.

By InvestSMART · 11 Jul 2012

By InvestSMART ·
11 Jul 2012

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THE sharemarket has lost ground for a fourth straight day, slipping below 4100 points yesterday after a sharp slowdown in Chinese imports fanned concerns about global growth.

A day after Iluka Resources took a battering from shareholders for reporting poor second-quarter sales, the resource sector again weighed heavily, with BHP Billiton slipping 26? to $31.22 and Rio Tinto losing 44? to $56.10.

As investors ditched stocks considered risky, the big banks were also down and media shares performed poorly.

The benchmark S&P/ASX 200 Index lost 20.3 points, or 0.5 per cent, to 4098, contributing to the sharemarket's longest losing streak in five weeks.

Trading started positively, even though shareholders were aware that Spanish 10-year bond yields had flared up again, touching a dangerous 7 per cent, a painful reminder that Europe's debt crisis has a long way to run.

But things turned sour when trade data showed China's surplus had hit a three-year high of $31.7 billion in June after import growth slowed much more than expected.

Import growth was just 6.3 per cent, which was half the previous month's level and below the consensus 11 per cent, while exports grew by 11.3 per cent, down from 15.3 per cent in May.

Chinese imports of iron ore the most important Australian export declined by 9 per cent in the month.

On a day when volumes were again extremely light, the falls in resource stocks were bound to weigh on the market.

"The weak import growth adds fuel to the argument of slowing investment and domestic activity within China," said IG Markets analyst Cameron Peacock. "[That] had a predictable negative impact on the share prices of our major miners."

Ten Network and Seven West Media touched record lows. Ten lost 0.5? to end the day at 47? after earlier brushing 46?. Seven West Media closed at $1.59 after hitting a low of $1.56, its cheapest since listing in July 2009.

Myer slumped 12.5?, or 6.9 per cent, to $1.675.

Among the banks, NAB lost 12? to $23.55, ANZ 16? to $22.34, CBA 34? to $53.44 and Westpac 4? to $21.56. with AGENCIES

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Frequently Asked Questions about this Article…

Why did the Australian sharemarket fall for a fourth straight day?

The market fell mainly because a sharp slowdown in Chinese import growth raised concerns about global growth. That hit resource stocks hard and dragged down the S&P/ASX 200, contributing to the market's longest losing streak in five weeks.

How did China’s trade data specifically affect Australian miners like BHP Billiton and Rio Tinto?

China’s trade report showed a three-year high trade surplus and much weaker import growth, including a 9% decline in iron ore imports. That weaker demand outlook weighed on major miners, with BHP Billiton and Rio Tinto seeing notable share price falls (BHP to $31.22 and Rio Tinto to $56.10 in the report).

What were the key China trade figures that worried investors?

The report showed China’s June trade surplus reached $31.7 billion, import growth slowed to 6.3% (well below the 11% consensus) and exports grew 11.3% (down from 15.3% in May). Investors were particularly concerned because imports of iron ore fell by 9%.

Which sectors besides resources were hit by the sell-off?

Big bank shares and media stocks also underperformed. Major banks fell (for example, NAB at $23.55, ANZ at $22.34, CBA at $53.44 and Westpac at $21.56 in the report). Media names such as Ten Network and Seven West Media touched record lows, and Myer also slumped.

How badly did media companies like Seven West Media and Ten Network perform?

Media stocks were weak: Ten Network touched record lows and ended the day around 47 cents, while Seven West Media closed at $1.59 after hitting $1.56, its cheapest level since listing in July 2009.

What do analysts say weak Chinese import growth means for investors?

IG Markets analyst Cameron Peacock said weak import growth adds weight to the view of slowing investment and domestic activity in China, a development that predictably hurts the share prices of major Australian miners.

Were there other global factors affecting markets that day?

Yes. European debt worries were also in the background: Spanish 10-year bond yields flared up, touching about 7%, reminding investors that Europe’s debt crisis still poses risks to global markets.

What should everyday investors be watching after this market drop?

Based on the article, investors should watch upcoming China trade and commodity data (especially iron ore imports), movements in major resource company shares, bank sector performance and global credit indicators such as European bond yields, since these were the drivers behind the fall described.