Stockmarkets reeled as dismay swept their halls on the winds blowing from increasingly uncertain Europe and China, writes Michael Evans.
SHARP falls in commodities prices, concerns about a slowdown in the Chinese economy and predictions of a break-up of the eurozone have sparked fears over risks to the strength of Australia's mining boom, leading to the biggest fall on the local sharemarket this year.
Global markets slumped yesterday, with the Australian market down more than 2 per cent, led by major miners BHP Billiton and Rio Tinto, which slumped to near three-year lows. The dollar continued its slide, falling below US99? and at one point to its lowest for the year at 98.95?.
Commodities prices have fallen heavily since February with key indices such as the Thomson Reuters-Jefferies CRB index at near two-year lows, having fallen 11 per cent since February.
Jac Nasser, chairman of the world's biggest miner, BHP Billiton, said it would not proceed with all of $80 billion in new investment announced last year, raising questions about jobs creation in the sector. Chief executive Marius Kloppers said yesterday cash flows across the industry were lower than they were a year ago.
ANZ boss Mike Smith added his voice to concerns over a fallout from the ructions in Europe, saying a break-up of the eurozone was "quite likely". Former Treasury secretary Ken Henry argued this week that the eurozone would fail within six months.
Greece's President Karolos Papoulias has admitted almost ?1 billion ($A1.2 billion) has been withdrawn from the country's banks since the May 6 elections failed to form a government.
Added to the continued uncertainty over Europe, fresh concerns have emerged from the impact of China's plans to lower economic growth to a more sustainable 7 per cent annually from 10 per cent. Lower projected demand has hit commodity prices, forcing mining companies to weigh up the profitability of projects and investors to question their pricing of stocks.
Australian commodities giants have fallen heavily. BHP shares fell 4 per cent to $32.49, their lowest since July 2009. Rio fell 4 per cent to $57.99, their lowest since October 2009.
BHP has fallen 10 per cent this month Rio has fallen 12 per cent.
Other energy stocks followed suit yesterday, with Newcrest Mining falling $1.07 to $23.80, Fortescue Metals down 26? to $4.84, and Origin Energy down 22? to $12.93.
The benchmark S&P/ASX 200 Index has now fallen 6.5 per cent in the past 12 trading days, closing yesterday at 4165, its low for the day.
Markets in the region were a sea of red. Hong Kong fell 3 per cent and Japan, Shanghai, Taiwan and South Korea all dropping heavily.
Adding to those pressures, investors expect increased production from new mines commissioned at the peak of the boom to start coming online in the next few years, increasing supply and putting further downward pressure on commodity prices.
Investors fear the fall in commodities prices signals that the peak in Australia's terms of trade and the peak of the boom may have passed.
A fall in growth in China, which this week made it easier for banks to lend money and stimulate the economy, may spell concern for Australian investors.
"Risks to the commodity boom have increased," AMP Capital Investors chief economist Shane Oliver said.
"We are certainly seeing a commodities correction. The broader question is, is this the top of the boom that got under way at the end of last century?"
"The tailwind of high commodity prices has contributed to record growth in the sector. Now we have a period where those tailwinds are moderating and we expect further easing over time."
"Importantly, for us, if our criteria cannot be met in one project, or one product or one geography, we will redirect our capital elsewhere or we simply won't invest."
"We just don't know with certainty what the future is going to deliver . . . if I'm wrong and the China and India boom tails out, the exchange rate has to adjust and fiscal policy and monetary policy adjust and labour markets adjust."
"You're often at your weakest when you're at your strongest. That second wave [of investment] is there, we are working on it but I want to make sure we actually grab it."