August 10, 2007 04:48pm
- US sub-prime mortgage fears hit global markets
- ECB pumps record 94.8bn euros into banking sector
- BNP Paribas' investment fund news spooks investors
THE stock market posted its biggest one-day fall in six years today following falls on Wall Street still spooked by the rout in the US sub-prime mortgage sector.
The largest fall since the September 2001 US terrorist attacks wiped almost $53bn from the value of the market, rattling investor confidence and eroding superannuation-linked gains
At the close, the benchmark S&P/ASX200 index was 229.6 points lower at 5936, while the all ordinaries retreated 222.5 points to 5965.2.
At 1621 AEST on the Sydney Futures Exchange, the September share price index contract was 227 points lower at 5924, on a volume of 34,944 contracts.
MFS Ltd chief executive Guy Hutchings said it would take time for the market to settle, with further volatility expected next week as investors anticipated further effects from the credit crisis.
"Cash is king at present, with the market continuing to respond very directly to offshore volatility as the fall-out from sub-prime credit crisis spreads," Mr Hutchings said.
"Investors are clearly spooked by the extent of loses in the US and Europe overnight and there were no real positions of safety, with losses across the board.
"The fact that the local market fell away quite dramatically at the end of the session implies traders did not want to hold stocks over the weekend, which indicates the nervousness is likely continue well into next week.
Treasurer Peter Costello moved to hose down concerns of a market collapse in Australia, noting the market was undergoing a correction, coming off a very high base.
The Dow Jones industrial average dropped 387.18 points to 13,270.68 overnight, the Standard & Poor's 500 Index lost 44.40 points to 1,453.09 and the Nasdaq gave up 56.49 points to 2,556.49.
Locally, the big miners were weaker, with BHP Billiton losing $2.00 to $34.66 and rival Rio Tinto Ltd shedding $3.49 to $84.77.
US stocks tumbled overnight, with the Dow and S&P down nearly 3 per cent, after a French bank froze three funds that had invested in US sub-prime mortgages.
The Dow Jones industrial average sank 387.18 points to 13,270.68, and the Standard & Poor's 500 Index slid 44.40 points to 1453.09.
It was the worst percentage drop for both indexes since the February 27 sell-off.
The Nasdaq Composite Index fell 56.49 points, or 2.16 per cent, to 2556.49.
Nomura Australia equity markets strategist Eric Betts said there was a climate of "heightened risk aversion'', following Wall St's woes.
"We've had falls across the board following Wall St, and the problems in Europe as well stemming from the sub-prime loan problem,'' he said.
"It's just a climate of heightened risk aversion.
"People are selling anything that moves, basically.''
Mr Betts ruled out a recovery on the local market later in today's session, and in US markets tonight.
"We'll finish on a down note, it's pretty sure,'' he said.
''(In the US) I don't think there will be any quick recovery.
"This could drag out for a while.''
The major miners were both down significantly.
Mining giant BHP Billiton dropped $1.44 or 3.93 per cent to $35.22.
Rival miner Rio Tinto shed $2.96 or 3.35 per cent to $85.26.
At 12.08pm, the major banks all were trading much lower.
The Commonwealth Bank of Australia lost $1.47 to $53.33, the National Australia Bank 75 cents to $38.75, ANZ 69 cents to $28.28, and Westpac 74 cents to $25.85.
Shares in Bendigo Bank and Adelaide Bank also fell, a day after announcing merger plans that would create a $4 billion financial giant.
Shares in Bendigo dropped 62 cents to $15.78, while Adelaide Bank fell 52 cents to $15.99.
On the New York Mercantile Exchange, September crude settled down 56 US cents at $US71.59 a barrel.
Local energy stocks were trading lower, with Woodside Petroleum $1.23 weaker at $42.38, Oil Search down 18 cents to $3.49, and Santos 44 cents lower at $12.27.
On a quite day for equities news, furniture retailer Nick Scali reported a 6.9 per cent rise in annual profit.
The company's net profit for 2006/07 rose to $8.664 million, from $8.106 million, after sales revenue grew by 19.6 per cent to $77.202 million.
Nick Scali was one of the few companies to witness a rise, with its shares adding five cents to $2.45.
At 12.16pm the spot price of gold in Sydney was $US663.00, down $US10.50 from yesterday's Sydney close.
Despite the sharp fall in gold prices, the miners were relatively unchanged.
Newmont Mining Corp lost eight cents to $4.86, and Lihir Gold six cents to $3.11.
However, Newcrest Mining was three cents brighter at $26.03.
Shares in Telstra continued to fall after the telco yesterday said it expected earnings in the first half of this year to be slightly negative.
Shares in Telstra were down 11 cents to $4.41, while its T3 receipts also lost 11 cents to $2.92.
Optus-owner Singapore Telecommunications was down four cents to $2.59.
Meanwhile, shares in News Corporation fell after the company yesterday reported a 22 per cent rise in annual profit.
News Corp fell 51 cents to $26.26, while its non-voting scrip lost 15 cents to $24.40.
The major retailers were trading at a discount, with Woolworths losing 87 cents to $26.29.
Takeover target Coles Group fell 46 cents to $14.23, and its suitor, Wesfarmers, dropped $1.04 to $40.34.
The top-traded stock by volume was Empire Oil & Gas, with 333.78 million shares worth $7.79 million changing hands.
Its shares added 0.5 cents, or 22.73 per cent, to 2.7 cents.
TREASURER Peter Costello has hosed down concerns in Australia about the impact of a major sell-off in global markets, particularly in the US overnight.
He said the Australian stock exchange, which has fallen almost three per cent today, was undergoing a correction off a very high base."After that correction the market is still up six per cent over this year,'' he said.
Mr Costello said he had spoken to financial market and industry regulators today.
Minimal exposure
Australian financial institutions had minimal exposure to the fallout in the US sub-prime mortgage market, which offers loans to persons with weak credit histories, he added.
Similar products in Australia are called non-conforming loans and make up just one per cent of the market and rate of delinquencies was lower than in the US.
"There is a correction going on in the market," he said.
Aussie market still up
"The market has fallen 2.5 per cent but after that correction the market is still up 6 per cent over the year.
"Bear in mind, where it's starting from before you assess the impact of this correction."
Mr Costello said one effect may be a re-pricing of credit risk, which means it might be harder for Australians trying to get a non-conforming loan.
"I think this will lead to a premium being built into risk and the risk of course is in relation to low credit ratings, low investment grade," he said.
"Those people or companies who are borrowing on non-investment grade bonds would expect that the interest rate will go up."
Financial institutions 'in good shape'
He said Australian financial institutions are in good shape.
"There is no reason why any Australian financial institution will be exposed," he said.
"The only effect in relation to Australia is, as you would expect, that if the world's largest economy experiences downturn or if the equity markets in the world's largest economy have a decrease that has knock-on effects to other capital markets."
RBA activity 'normal'
Mr Costello also said the activity by the Reserve Bank of Australia in the money market earlier today did not mean anything out of the ordinary was going on.
"No, I don't say that there was anything different," he said.
"They're just doing today what they normally do.
"Nothing different at all."
The central bank today injected about $4.95 billion into the banking system through the purchase of debt and related instruments.
Market watchers said the bank had added more money than was usual.
An RBA spokesman said earlier said its activity was part of its usual market dealing operations and "nothing special".
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