MORE than $36 billion was yesterday wiped off Australia's sharemarket, blasting a week's worth of gains, as fresh doubts emerged for a US recovery.
The heavy selling came as one of Australia's most senior business figures warned the world was on the edge of another economic crisis.
Australia's benchmark S&P/ASX 200 Index fell 149.3 points, or 3.5 per cent, to 4101.9, erasing much of its strong recovery from its worst rout in two years last week.
The dollar slid US1.08? to $US1.0375, while gold, a refuge from insecure currencies, surged $US53.70 to a record Australian close of $US1847.80 an ounce.
The flight to safety followed heavy losses on Wall Street on Thursday night. The broadly based S&P 500 Index slumped 4.5 per cent to 1140.65 points after a leading indicator of US economic health, the Philadelphia Fed Index, plunged to its lowest since March 2009, raising fears that the US was sliding into recession.
ANZ chief executive Mike Smith said the fragile economic situation in the US and Europe, stemming from government debt troubles, was "delicately poised" and likely to cause global markets to remain volatile for some time.
Mr Smith labelled Europe "a mess" and warned that failure by political leaders to tackle the economic problems could lead to a global crisis. But he remained positive on the longer-term outlook for the Australian economy due to its close links to the fast-growing Asian region.
Westpac senior international economist Huw McKay tipped global growth to slow to 3.5 per cent next year. This includes an outright recession in Europe, weak growth in the US, and the key emerging markets, including China Australia's biggest trading partner experiencing below-trend growth.
"The financial stresses coming out of Europe and affecting everybody we can't stand aloof from that, so that is a negative shock the Australian economy will have to absorb," he said. "We're also in a situation where the support which the economy is receiving from high commodity prices is also going to be moving in the other direction."
Saul Eslake, a director at economic adviser the Grattan Institute, said there was a 25 to 33 per cent chance that the world's biggest economy would lurch into recession.
"The US economy had been growing very weakly, it grew at a 0.8 per cent annualised pace over the first half of the year," Mr Eslake said. "But most economies are like bicycles in this respect, in that if they are not moving forward at a sufficient rate then it is very easy for them to fall over.
"The US is vulnerable to a shock."
But the market volatility has not scared everyone. Fortescue Metals chief financial officer Stephen Pearce said the company would push ahead with a plan to source $1.5 billion from foreign debt markets this financial year.
Mr Pearce said Fortescue had "options and time" to choose the best location and moment to launch its debt play. Fortescue shares fell 30?, or 5 per cent, to $5.75.
The renewed stockmarket volatility could not have come at a worse time for Bega Cheese. The southern hemisphere's largest cheese cutting and packing company listed on the Australian Securities Exchange yesterday, losing 5 per cent on opening.
It did not get easier for the rookie as the session progressed, with Bega finishing 16?, or 8 per cent, weaker at $1.84.
Frequently Asked Questions about this Article…
What triggered the sharp slump in the Australian sharemarket?
The sell-off followed heavy losses on Wall Street after a US economic indicator (the Philadelphia Fed Index) plunged to its lowest since March 2009, raising fears of a US slowdown or recession. Australian markets were hit by the spillover of those worries, plus concerns about government debt problems in Europe and cautious commentary from senior business figures.
How much value was wiped off the Australian market and how did the ASX 200 perform?
More than $36 billion was wiped off Australia's sharemarket. The S&P/ASX 200 fell 149.3 points, or 3.5%, to 4,101.9 — erasing much of the recent recovery from its prior rout.
How did global indicators, like the S&P 500 and the Philadelphia Fed Index, contribute to the market fall?
The broad S&P 500 slumped about 4.5% to 1,140.65 after the Philadelphia Fed Index plunged to its lowest level since March 2009. That sharp deterioration in a leading US economic indicator heightened recession fears and triggered a global risk-off reaction that hit Australian stocks.
What happened to the Australian dollar and gold during the sell-off?
The Australian dollar slid to about US$1.0375 as investors fled riskier assets. Gold, seen as a safe-haven, surged roughly US$53.70 to a record Australian close of about US$1,847.80 an ounce.
How did the volatility affect mining company Fortescue Metals and its plans?
Fortescue's chief financial officer said the company still plans to pursue about $1.5 billion from foreign debt markets this financial year and has 'options and time' to pick the best market and timing. Despite that, Fortescue shares fell around 5% to $5.75 amid the market turmoil.
What happened to newly listed Bega Cheese during the market downturn?
Bega Cheese, which listed on the ASX the same day, lost about 5% on opening and finished the session roughly 16% weaker at $1.84 — a rough debut affected by the broader market volatility.
What are economists saying about the near-term global growth outlook and recession risk?
Westpac's senior international economist Huw McKay predicted global growth could slow to about 3.5% next year, including the possibility of a recession in Europe and weaker growth in the US and key emerging markets like China. Saul Eslake put the chance of a US recession at around 25–33%, and noted US growth had been weak, at about a 0.8% annualised pace over the first half of the year.
What takeaways from this volatility should everyday investors consider?
The article highlights that global debt worries and weak US indicators can quickly drive market volatility and a flight to safety (for example, into gold). While some business leaders remain cautious, others — and some companies — continue with funding plans. Investors may want to be aware that volatility could persist, pay attention to company-specific news (like Fortescue’s debt plans or Bega’s listing performance), and consider how exposure to global economic risks might affect their portfolios. For personal strategy, it's sensible to seek tailored advice from a financial professional.
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