INVESTORS dumped commodity stocks yesterday and switched into high-yield shares such as Telstra, which climbed to a three-year high.
Heavy falls overnight on overseas markets had set the scene for an ugly Australian session. Speculation that Greece would be forced out of the European Union sent European stocks down 2 per cent and more. Wall Street was not hit so hard but the Dow Jones, the S&P 500 and the Nasdaq all finished 1 per cent lower.
Australian stocks opened weakly and were soon down 45 points, or 1 per cent. From there, however, they edged up to take the benchmark to a closing loss of 30.7 points, or 0.7 per cent, at 4266.3.
Fears centred on the outlook for commodity prices and growth stocks. BHP Billiton led the way down, falling to a three-year intraday low of $33.46, and closing at $33.86, for a loss of 60?, or 1.7 per cent.
Telstra, the once-lacklustre telco, had its best day in three years, jumping as much as 11? to $3.75 and closing 7? higher at $3.71.
Divergence between sectors was evident in the final figures. The resources sub-index dropped 2 per cent while telecommunications stocks jumped 1.8 per cent and the utilities sector put on 1.2 per cent.
"There is obviously an appetite for stocks that pay
a dividend yield," said Macquarie Private Wealth's head of research, Riccardo Briganti. "But it feels to me this isn't a typical riskoff it's something more."
Mr Briganti said investors' concerns about weakness in China not to mention the struggles of the European economy were not dashing appetite for equities across the board. "There is still appetite for equities but
not for those areas that have any sort of international exposure or leverage to the cycle."
In another sign that investors were altering their expectations for the market, the banking sub-index fell only 0.4 per cent, despite credit ratings agency Moody's downgrading
26 Italian banks overnight.
Mr Briganti said that if investors' focus had been solely on Europe's banking troubles, they would have sold local banks down more.
Arab Bank Australia treasury dealer David Scutt said the shift in investor behaviour also reflected the early stages of the retirement of baby boomers. As they took the first steps towards retirement, their attitude towards risk in the market had changed, he said.
"People getting close to retirement are getting completely disenchanted with the way stocks have performed over the past three years," he said.
Wariness about losses had made investors of that age more selective about their holdings, he said. "The thing we need to realise in this world is that we have got ageing people in all the major Western economies."
Until recently, they could depend on rising equities and home prices for a more comfortable retirement but that had changed, he said.
The dollar rose back above parity as the sharemarket was closing, finishing at US100.02?.
Frequently Asked Questions about this Article…
What caused the Australian sharemarket to fall in the session described?
The selloff was driven by heavy falls on overseas markets, especially European stocks after speculation Greece might be forced out of the EU. US indices also finished about 1% lower. Those international worries set a weak tone for the Australian market, which opened down and closed slightly lower.
Why did commodity stocks and BHP Billiton drop during the selloff?
Fears about the outlook for commodity prices and global growth hit resource stocks hardest. BHP Billiton led the decline, hitting a three-year intraday low and closing lower, reflecting investor concern about demand and price pressure for commodities.
Why did Telstra and other high-yield shares outperform during the market weakness?
Investors shifted into high-yield, income-producing stocks amid risk worries. Telstra had a very strong day—rising in double digits intraday and closing about 7% higher—because investors sought dividend yield and perceived defensive income as more attractive than cyclical exposure.
How did different sectors perform — were there clear winners and losers?
Yes. The resources sub-index fell around 2%, while telecommunications jumped roughly 1.8% and utilities added about 1.2%. The banking sub-index was relatively resilient, falling only about 0.4% despite negative news in Europe.
What did market commentators say about investor behaviour during the selloff?
Macquarie Private Wealth’s head of research said there’s a clear appetite for dividend-yielding stocks and that investors are avoiding areas with international exposure or high cyclical leverage. An Arab Bank Australia dealer also noted baby boomers moving into retirement are becoming more risk‑averse and selective in their holdings.
Did European banking troubles and Moody’s downgrades affect Australian banks?
Moody’s had downgraded 26 Italian banks overnight, but the Australian banking sub-index fell only modestly. Commentators suggested that if investors were focused solely on Europe's banking troubles they would have sold local banks more aggressively, so the impact on Australian banks was limited in this session.
What does the shift into dividend stocks mean for everyday investors?
The shift signals that some investors are prioritising income and capital preservation over growth right now. For everyday investors, it’s a reminder to review portfolio risk, consider income-generating assets if seeking stability, and ensure allocations match your time horizon and retirement plans.
How did the Australian dollar move during the market session?
The Australian dollar rose back above parity as the market was closing, finishing slightly above US$1, reflecting currency market reactions to the same global risk factors that affected equities.
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