ASX suffers biggest fall in 10 years
Blue chip stocks have plummeted, a major online broking website crashed and investors raced for the exit door as the Australian stock market suffered its worst one-day fall in more than 10 years, losing $96 billion.
Fears of a recession in the US, and the likely downside effect on global economic growth, has panicked markets from London to China and prompted a repricing of stocks.
Treasurer Wayne Swan believes Australia can ride out the wave of turmoil that has swept the globe, following the US sub-prime mortgage market crisis that began in August last year.
"I note we are well placed to ride out the turbulence that flows from events in the United States even though we are not immune from it," he said.
However, brokers said the Australian market may have turned the corner into a bear phase after years of bullish returns and growth.
The Australian benchmark S&P/ASX200 index lost 7.05 per cent - or 393.6 points to 5186.8 - to mark its biggest one-day fall on record. The index fell 6.79 per cent on October 29, 1997.
The 7.26 per cent drop in the broader All Ordinaries index was the biggest in more than 20 years, the fourth worst one-day fall on record and shaved $96 billion from the market's value.
The All Ordinaries plunged 408.9 points to 5222.0, the worst performance since October 29, 1987, when it fell 7.52 per cent.
The market has lost $282 billion since January and $388 billion since its intraday record peak in November.
The slump on Tuesday also extended the Australian market's losing streak to 12 straight sessions - the longest since January 1982.
Colonial First State head of investment markets research Hans Kunnen said the market had turned bearish, with the All Ordinaries now down by more than 20 per cent since November.
"Judging by the mood of the market today, the bears are certainly winning," Mr Kunnen said.
The website of Australia's largest online share broker, CommSec, crashed for half an hour today as investors traded at unprecedented volumes.
Mr Kunnen said it was too early to pick the bottom of the market because there would be more bad news out of the US.
But investors should soon realise they could re-enter the market at a 20 per cent discount to late last year.
CommSec chief equities economist Craig James said the sell-off was an overreaction and "a clear case of the heart ruling the head".
"There would be reason to be worried if our economy was weak and our companies were experiencing lower sales and earnings. But that is far from the case," he said.
Mr Kunnen said as the market heads into the February/March company profit reporting season, investors may get further encouragement from expected good returns.
"The outlook for Australia is not bad," he said.
"It's just that sentiment is poor, and people think a US recession will lead to an Australian recession.
"I disagree," Mr Kunnen said.
Asian share markets retreated by between four and nine per cent today as the ramifications of the negative US outlook hit home.
The declines mirrored falls overnight on Monday in European markets, which had set the tone in the absence of the US, which was closed for the Martin Luther King public holiday.
All sectors in the Australian market were affected, with the financial and mining sectors especially weak.
Mr Kunnen said the punishment of the financial sector was unwarranted because Australia had different lending patterns to the US and the major local banks should still perform well in the current economic climate.
The mining sector was pummelled because investors fear a US recession could mean lower demand and prices for Australia's major commodity exports.
The unsettled environment has also raised doubts about whether global miner BHP Billiton can proceed with a $US100 billion-plus formal takeover bid for rival Rio Tinto.
But exports to Asia are growing and growth in the region should sustain the Australian economy, observers say.
"Even if the United States has a recession, growth in China will be robust for quite a few year simply because of industrialisation and urbanisation there," Mr Kunnen said.
"That should flow through to the banks, the supermarkets, the media companies, as we ride off the wealth generated from that trade."
Mr James said a circuit-breaker was needed to halt the selling frenzy across the world.
"The global sharemarket slide has its genesis in US recession fears, and it is up to the US authorities to take action," he said.
Harvey Norman Holdings Ltd has reconfirmed its half-year guidance after interim sales revenue rose by just over 12 per cent, boosted by a strong holiday shopping season.
Australia's biggest electronics retailer reported on Tuesday a 12.4 per cent lift in first half sales to $3.04 billion for the six months to December 31, compared with the prior corresponding period.
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Australian shares plunged a massive 5% before noon as panic selling set in among investors over an expected slowdown in global growth. The benchmark S&P ASX 200 Share Index had shed more than 5% before noon, down 282.1 points to 5298.3 points - its lowest since November 2006 - placing the market on course for a record 12th day of declines. The plunge equated to a $64 billion loss of market value. The latest plunge means the sharemarket has now lost more than 22% of its value since hitting a record high in November and is now officially in a bear market. The broader All Ordinaries Index was down 294.4 points, or 5.23%, to 5336.5 before noon. Asian bourses were also softer, with Japan's benchmark Nikkei Share Average Index down 4.8% and the boarder TOPIX index down 4.6%. Austock Securities client adviser and strategist Michael Heffernan said there was "blood on the floor'' with the market falling 3 per cent in the first few minutes of trade. "I think the blood bank is trawling all brokers' floors to recover the blood," he said. "We are all feeling what it would be like to do 15 rounds with Mike Tyson but in reality there are some great stocks at fantastic value." Mr Heffernan said sooner or later the market would come back. "While it will finish down today, sooner or later investors are going to see the value in good stocks and I say they are great value. So investors should never look back." Leading the retreat was BHP Billiton, which lost as much as $2.04, or 6.1 per cent, in early trading to $31.25. Its potential prey, Rio Tinto, fell as much as $9.93, or 8.7%, to $104.32. Banks were also sharply lower, with the Commonwealth Bank down as much as $2.38, or 4.7%, to $48.50, its first drop below the $50-mark in more than nine months. The major banks were weaker at 10.38am, with Commonwealth Bank down $1.27 to $49.51, National Australian Bank down $1.00 to $34.20. Westpac down 48 cents to $25.29 and ANZ down 61 cents to $25.59. In the retail sector, Wesfarmers was off 90 cents at $33.60 and Woolworths was down 12 cents at $30.91. Upmarket department store David Jones traded down 18 cents to $4.57. Harvey Norman Holdings is also expected to announce its second-quarter sales results today. At 10.25am the stock was down two cents to $5.86. The Australian dollar also sank overnight, losing more than 1.5 US cents to drop to 85.80 US cents for the first time in almost a month, and sliding to a five-month low against the yen. Financial stocks were big losers in morning trade at 10.40am with Macquarie Group down $4.75, or 7.24 per cent, to $60.95, Babcock & Brown down $1.43, or 7%, to $17.00 and Allco Finance Group down 30 cents, or 10%, to $2.88. Energy stocks followed the downward trend with Woodside Petroleum down $2.69 to $42.88, Oil Search off 13 cents to $4.36 and Santos down 63 cents to $11.99. In the media sector, Fairfax shed eight cents to $4.11, News Corp lost 44 cents to $21.32 and its non-voting scrip was down 74 cents to $20.51. Ten Network lost six cents to $2.51 and Seven Network was down 23 cents to $11.55. Flinders Diamonds was the heaviest traded stock at 10.54am with a total of 31.15 million shares changing hands together worth $3.1 million. Its shares fell 1.8 cents to 9.2 cents. Overall a total of 681.003 million shares changed hands with a total value of $1.95 billion with 57 stocks higher, 1245 lower and 189 unchanged. Concern that slower US growth would drag on the world economy and slash companies' earnings triggered the steepest falls since the September 11 terrorist attacks of 2001 on many overseas markets overnight. "There is a wave of panic emerging as the fear unfolds," Martin Slaney, head of derivatives trading at GFT Global Markets in London said in an email, prior to the start of trading. Wall Street, which was closed for yesterday's Martin Luther King Day holiday, is set to join the declines when it opens later today, with futures clocking up their biggest fall since 2001, Bloomberg said. Commodity prices also sagged, with oil prices falling to a one-month low overnight, and gold sank to its lowest in two weeks. Rising stockpiles have added to the gloom for industrial metals, with copper shedding another 3.7% in London, bringing the decline from its peak to 22%, according to Bloomberg data. While US markets were closed, the downbeat mood from last week's market declines there circled through Europe, Asia and Canada. The UK benchmark FTSE-100 dropped 4.7 per cent to 5625.20; France's CAC-40 Index plunged 5.9 per cent to 4793.39, while Germany's blue-chip DAX 30 slumped 6.74 per cent to 6821.42.