Weaker sharemarket down and falling

The sharemarket ended a horror week in which investors worried about Europe's finances.

By InvestSMART · 19 May 2012

By InvestSMART ·
19 May 2012

Comments

The sharemarket ended a horror week in which investors worried about Europe's finances.

THE sharemarket ended a horror week in which investors' worries about Europe's finances and a slowing Chinese economy took the monthly loss to about $110 billion.

The benchmark S&P/ASX 200 Index lost 2.7 per cent on the day and 5.6 per cent for the week, the worst five-day return since late September.

It shed 110.9 points for the day - the highest this year - to end at 4046.5, its weakest close in almost six months.

The dollar also touched new lows for the year, sinking to US97.95? at one point. Interest rate futures markets are now rating the chance of another 50-basis-point rate cut by the Reserve Bank when it meets on June 6 at 75 per cent.

Investors are also pricing in another 125 basis points in cuts for the cash rate in one year. If this eventuates the cash rate would drop to just 2.5 per cent, half a percentage point below its lowest point during the global financial crisis.

IG Markets analyst Stan Shamu said the market was already pricing for a worst-case scenario in Europe and it was hard to make predictions. ''People are now scared that we will get a lot of contagion from Greece and Spain and the situation will end very badly,'' he said.

The week began with the news that Greece had failed to form a government and will hold elections on June 17. The prospect of weeks of doubt about whether a new government will emerge, and whether it will back the European Union's austerity package, is likely to dog markets for weeks.

In the meantime, investors have already begun looking for the next European debt domino to fall, with Spain the most likely candidate.

With more signs of a slowing China, confidence that Australia's reliance on Asia will shield it from another European crisis is evaporating.

Big broking houses, including Goldman Sachs, are cutting growth targets for China for the year. China's home prices in cities fell last month and car dealers' inventory levels foreshadowed deeper price cuts - the latest in a string of bad news.

Australian Stock Report head of research Geoff Saffer said worries about China will continue to affect the market.

''We expect the Chinese story to continue as an overhang to the Australian market for some time,'' he said. ''Until China implements wide-ranging stimulus measures we expect fears about a slowdown to continue. The short-term outlook is probably still bearish.''

Miners have borne the brunt of the falls. BHP Billiton lost $1.31, or 4 per cent, to $31.46, and Rio Tinto slumped $2.96, or 5.1 per cent, to $55.20 on the day.

Among big banks, National Australia Bank sagged $1.03 to $23.32, Westpac shed 81? to $20.41, ANZ lost 73? to $20.84, and Commonwealth Bank fell $1.62 at $49.40.

Woolworths and Wesfarmers lost 1 per cent to $26.68 to be among the better performers of the top 50 stocks on the day, while Wesfarmers lost 2.1 per cent to $29.55. Telstra fell 1.7 per cent to $3.52.

BUSINESSDAY with AGENCIES

Go to Google News, then click "Follow" button to add us.

Share this article and show your support

Frequently Asked Questions about this Article…

Why did the Australian sharemarket fall sharply this week?

The article says investors were spooked by worries about Europe’s finances (notably Greece and the risk of contagion to Spain) and signs of a slowing Chinese economy. Those global worries drove selling pressure on the ASX, producing one of the worst weekly returns since September.

How much did the S&P/ASX 200 drop and what were the market losses?

According to the article the benchmark S&P/ASX 200 lost 2.7% on the day and 5.6% for the week. It fell 110.9 points to close at 4,046.5—its weakest close in almost six months—and the month’s losses wiped about $110 billion off market value.

Which sectors and blue‑chip stocks were hit hardest in the downturn?

Miners and big banks took the biggest hits. The article reports BHP Billiton fell $1.31 (4%) to $31.46 and Rio Tinto dropped $2.96 (5.1%) to $55.20. Major banks also weakened: National Australia Bank down $1.03 to $23.32, Westpac down 81 cents to $20.41, ANZ down 73 cents to $20.84 and Commonwealth Bank down $1.62 to $49.40. Retailers like Woolworths and Wesfarmers fell about 1%–2.1%, and Telstra slipped 1.7% to $3.52.

How are events in Greece, Spain and China affecting Australian investors?

The article notes Greece failed to form a government and will hold elections on June 17, raising fears of prolonged uncertainty and possible contagion to countries such as Spain. At the same time, signs of slowing growth in China—falling home prices and rising car dealer inventories—are weakening confidence that Asia will shield Australia from a European fallout.

What are markets pricing for Reserve Bank rate cuts and why does that matter?

Interest rate futures were pricing about a 75% chance of a 50‑basis‑point RBA cut at the June 6 meeting, and investors were pricing another 125 basis points of cuts within a year (which would put the cash rate near 2.5%). Those expectations matter because anticipated rate cuts can influence bank margins, consumer spending and overall market sentiment.

How did the Australian dollar react during the sell‑off?

The article reports the Australian dollar touched new lows for the year, sinking to around US97.95 cents at one point during the market fall.

What are analysts saying about the market outlook and sentiment?

IG Markets analyst Stan Shamu said markets were already pricing a worst‑case scenario in Europe and that investors were scared about contagion from Greece and Spain. Australian Stock Report head of research Geoff Saffer warned the Chinese slowdown would remain an overhang and described the short‑term outlook as probably still bearish until wide‑ranging Chinese stimulus is implemented.

What developments should everyday investors be watching after this market drop?

Based on the article, investors should monitor the outcome of the Greek political process (elections on June 17), signs of contagion in Europe (especially Spain), incoming Chinese economic data (housing prices and dealer inventories), and the Reserve Bank meeting on June 6 given market pricing for rate cuts—these are the key drivers mentioned that influenced the sell‑off.