Australian share market loses $41 billion as market drops to two-year low
Australian shares dropped to their lowest point in two years, amid rising US-China trade tensions and a gloomy outlook for the local economy.
The benchmark ASX 200 closed 2.3 per cent lower at 5,553, back to where it was in December, 2016.
Meanwhile, the All Ordinaries fell by a similar amount to 5,628. In dollar terms, the broader index shed about $41 billion in market value.
Any relief felt by global investors after the G20 “trade truce” was quickly undone by US President Donald Trump tweeting he was a “Tariff Man”, and would be prepared to ramp up his trade war against China if they could not reach a substantive deal.
“The relationship between the US and China has reached a level of strain that we haven’t seen in decades,” InvestSMART chief market stragetist Evan Lucas said.
Markets were also rattled by Canada’s arrest of Huawei’s chief financial officer, Meng Wanzhou last week, which fuelled further tensions between Washington and Beijing.
The ASX’s tumble was more severe compared to its Asia-Pacific counterparts — including New Zealand’s NZX 50 (-1.2pc), Japan’s Nikkei (-2.2pc), the Shanghai Composite (-0.8pc), Hong Kong’s Hang Seng (-1.4pc) and South Korea’s KOSPI (-1.3pc) indices.
The Australian dollar had recovered slightly to 72.16 US cents, after falling as low as 71.7 US cents earlier in the day.
All red … except for gold
The tumbling share price of the major banks — Commonwealth Bank (-3pc), Westpac (-3.4pc), ANZ (-4.2pc) and NAB (-2.5pc) — was the biggest drag on the local market.
Every sector posted losses, with technology (-3.7pc), health care (-3.6pc) and financials (-2.7pc) being the worst performers.
Most stocks on the benchmark index (176 out of 200) were caught in the sell-off.
Nine (-4.8pc), Bluescope Steel (-4.3pc), Qantas (-3.7pc) and APA Group (-3.5pc) were among the hardest hit big names.
Only 21 companies in the ASX 200 posted gains. Most of them were gold-mining companies, including Northern Star Resources (+3pc), Regis Resources (+5.7pc), Sandfire Resources (+2.7pc) and Resolute Mining (+3pc).
“On a day like today, you almost always see gold miners go up,” Mr Lucas said.
Gold is traditionally a safe-haven asset, and its value tends to rise when stock markets are plagued by volatility.
The price of spot gold rose 0.1 per cent to $US1,249.14 per ounce.
Aussie investors feeling poorer
Another reason for the market sell-off was the pessimism felt by investors about the future of the US and Australian economies.
On the domestic front, Australian investors were rattled by last week’s worse-than-expected GDP figures and the ongoing property market downturn — with the biggest price falls in Sydney and Melbourne.
Meanwhile, investors are worried the bond market is pointing to a US economic slowdown and potential recession, which may have flow-on effects across the globe.
“There’s a growing belief that in 2019-20, it will be very hard to find growth,” Mr Lucas said.
“People are asking the question: ‘Are the price of equities worth what they had been charged for?’
“What we’re currently seeing is what you’d normally see with a change in the wealth effect.
“That is, people believe their overall finances have weakened, therefore they have tightened their belts.”