Year's gains all but wiped out as investors spooked
The benchmark S&P/ASX 200 Index finished down 28.7 points, or 0.6 per cent, to 4695.8. The broader All Ordinaries shed 31.2 points, or 0.7 per cent, to 4684.9. It is the ASX 200's lowest close since January 8.
At one point the ASX 200 hit an intraday low of 4658 points - only slightly above where it was at the start of the year, at 4644. The All Ords hit its lowest point of the year at 4650 points.
The market has now fallen 10.1 per cent since its highest close for the year in mid-May, entering into what is widely considered a correction.
A broader global rout, which saw Japan's Nikkei enter bear territory and Chinese shares hit six-month lows, also plagued the local index. The Nikkei closed 5.4 per cent lower on Thursday. It has now fallen 21.9 per cent since its peak on May 23.
Credit Suisse strategist Damian Boey said investors were also responding to worrying reports that the People's Bank of China was not injecting much-needed emergency liquidity into Chinese financial markets, driving Australian resources stocks down.
"This is a big problem," he said. "[China] had some payment failures in the interbank system. Some banks are facing some stress there, and if the PBOC doesn't inject that liquidity, then it's saying it is prepared to tolerate banks experiencing stress - or even going under."
Locally, mining shares were hit hard by the Chinese fears, with BHP falling 2.6 per cent to $32.12 and Rio Tinto dropping 2.4 per cent to $51.57. Iron ore miner Fortescue Metals finished 3.4 per cent lower at $3.17.
Higher-yielding financials were the only major sector to post gains. Westpac jumped 2.6 per cent to $28.18, ANZ rose 1.7 per cent to $27.01, NAB gained 1.1 per cent to $28.37 and CBA added 1 per cent to $65.77.
"The decent sized drop on the ASX today has led to some value hunters to come in a play, there's always two sides to the coin," said Suncorp financial markets analyst Darryl Conroy.
However, the mood was unlikely to change, said Mr Conroy, as speculation surrounding the tapering of quantitative easing continues to spook investors. "It seems to be running on fear more than anything else."
Frequently Asked Questions about this Article…
Investors have been selling stocks amid fears that central banks could start withdrawing cheap money, and a broader global rout. The S&P/ASX 200 fell 28.7 points (0.6%) to 4,695.8 and hit an intraday low near where it began the year. The market has dropped about 10.1% from its mid‑May high, effectively erasing most 2013 gains.
The article says the market has fallen 10.1% since its highest close in mid‑May, which is widely considered a correction. In plain terms, a correction is a pullback of roughly 10% from recent highs, reflecting a meaningful but not catastrophic drop in share prices.
A broader global rout weighed on local markets: Japan’s Nikkei fell 5.4% in one session and has dropped 21.9% since its May peak, while Chinese shares hit six‑month lows. Worries that the People’s Bank of China wasn’t injecting emergency liquidity into its financial markets heightened fears and dragged Australian resources and mining stocks down.
Mining and resources were hardest hit. BHP fell 2.6% to $32.12, Rio Tinto dropped 2.4% to $51.57, and Fortescue Metals lost 3.4% to $3.17. By contrast, higher‑yielding financials were the only major sector to post gains.
Bank shares were relative outperformers that day: Westpac rose 2.6% to $28.18, ANZ gained 1.7% to $27.01, NAB added 1.1% to $28.37, and CBA increased 1.0% to $65.77. The article attributes this to investors chasing higher yields in financial stocks.
Credit Suisse strategist Damian Boey warned that reports the People’s Bank of China wasn’t injecting emergency liquidity were worrying. He said some payment failures had occurred in China’s interbank system, leaving some banks under stress — and that a lack of PBOC support could mean authorities were prepared to tolerate stressed banks or even failures.
Some value hunters did step in after the drop — Suncorp analyst Darryl Conroy noted bargain‑hunters were active. However, he also cautioned that market sentiment was likely to remain fragile while speculation about tapering quantitative easing continues to spook investors, so the outlook is uncertain.
Speculation that central banks might start tapering quantitative easing — reducing stimulus and cheap money — contributed to investor anxiety. According to the article, this fear helped drive the sell‑off, with market moves described as "running on fear" more than fundamentals.
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