Australian share market tumbles for second consecutive day
More than $80 billion has been wiped from the value of Australia’s share market over the past two days thanks to fears the coronavirus outbreak could become a pandemic.
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More than $80 billion has been wiped from the value of the Australian share market over two days amid growing fears the coronavirus outbreak is mushrooming into a pandemic.
As investors again swarmed the exits on Tuesday, the benchmark ASX 200 index fell 1.6 per cent, taking losses in the sell-off this week to 3.8 per cent.
It came as fears mount that intensive efforts to contain Covid-19 are failing and follows Wall Street notching up its worst one-day performance in two years overnight Monday.
Investment bank Goldman Sachs cut its forecast for Australia’s economic growth, while more companies joined the ballooning group to warn of a significant financial impact.
After markets in Europe and the US tumbled overnight Monday, the Australian bourse followed in early trade and the benchmark index shed 2.6 per cent within 40 minutes.
It then regained ground, helped by reports out of the US that Moderna, a mid-sized Massachusetts-based biotechnology group, had shipped a potential coronavirus vaccine to authorities for early-stage testing.
The index nonetheless finished deeply in the red, taking to $81.9 billion the amount cut from the value of the nation’s listed companies since Monday. It was the deepest two-day rout in six months.
Goldman Sachs chief economist Andrew Boak on Tuesday trimmed his projection for growth in Australian gross domestic product this year from 2.4 per cent to 2.1 per cent, citing the impact of the outbreak on Chinese tourist numbers and exports to China.
This quarter, GDP was likely to shrink 0.3 per cent compared with that of the three months to December, Mr Boak said.
In a research report, ANZ analysts said the heavy falls in share markets came despite the fact the outbreak was yet to be classified as a pandemic.
“Covid-19 is now present in 30 countries but the World Health Organisation has said it is not a pandemic as it is not spreading in an uncontained way,” they said.
Still, there were growing fears it would become a pandemic, and “pandemic or not, markets are selling off and retreating to safe havens”, the report said.
In the US, the Dow Jones Industrial Average fell 3.6 per cent overnight Monday in its biggest drop for two years. London’s FTSE 100 fell 3.3 per cent.
Paras Anand, Asia Pacific chief investment officer at fund management heavyweight Fidelity International, said the sell-off in foreign markets was surprising.
It was not surprising because of the scale of losses, “but because it was a long time coming”, he said.
Efforts to contain the outbreak had “arguably been more determined and disruptive” than they were for the outbreaks of severe acute respiratory syndrome, or SARS, earlier this century, and the H1N1 pandemic in 2009, Mr Anand said.
“In that context, the interesting question is not why markets were weak overnight but why, with such a clear impact on economic output and corporate earnings, have markets been so sanguine … last week,” he said.
One key difference was the other outbreaks came soon after “significant bear markets … whereas today we remain in, or arguably at the tail end of, one of the longest bull markets in history”, he said.
Market research company Roy Morgan said its analysis indicated one in six Australian companies had already been hit.
Another clutch of listed companies on Tuesday warned they were being affected. Having previously warned of an impact, Treasury Wine Estates, the Melbourne-based company behind brands including Penfolds and Coldstream Hills said sales in Asia were under pressure.
Online jobs board operator Seek, the majority owner of Beijing-based Zhaopin, said it was “extremely challenging” making short-term forecasts for that business given the uncertainties around the outbreak.
Caltex Australia warned the outbreak had hit demand for jet fuel as flights were cancelled.
Monash Business School lecturer Giovanni Di Lieto said if it did develop into a pandemic following an outbreak in Italy in recent days, it would have a significant impact in Europe.
“A pandemic is likely to trigger extensive travel restrictions with entire communities locked down,” Dr Di Lieto said.
STOCK PLUNGE MARKS CHANGE OF GEAR
The past two days have marked an abrupt change of gear for the market, which had broadly been rising throughout February despite mounting fears authorities were struggling to stop the spread of the virus.
The fall on Tuesday came after one of the world’s leading economic bodies, the International Monetary Fund, warned it would be “prudent” to prepare for a significant fallout from the Covid-19 outbreak. In a statement, IMF managing director Kristalina Georgieva said the outbreak was a global health emergency, had disrupted economic activity and could put a recovery in global growth at risk.
“Above all, this is a human tragedy, but it also has negative economic impact,” Ms Georgieva said.
Even if the virus were rapidly contained, growth in China and the rest of the world “would be impacted”, she said.
“Of course, we all hope for a V-shaped, rapid recovery — but given the uncertainty, it would be prudent to prepare for more adverse scenarios.”
Last month, the IMF forecast the global economy would grow 3.3 per cent this year, up from 2.9 per cent last year.
Ms Georgieva said the IMF now expected the outbreak to cut China’s rate of growth this year from a projected 6 per cent to 5.6 per cent — in turn cutting about 0.1 percentage points from global growth.
“But we are also looking at more dire scenarios where the spread of the virus continues for longer and more globally, and the growth consequences are more protracted,” she said.
In a separate report, Moody’s Analytics said efforts by Chinese authorities to curtail the spread were without precedent.
Moody’s analysts warned “prolonged factory closures in addition to the closure of major transport linkages are a significant blight on normal manufacturing operations”.
“Until the virus is contained and the number of infected patients stops rising, the toll on manufacturers and the broader economy will continue to rise,” they said.
In developments at the weekend, South Korean President Moon Jae-in said he was putting his country on its highest alert for infectious diseases, ordering officials to take “unprecedented, powerful” steps to fight an outbreak there.
In Italy, authorities battled to contain Europe’s first major outbreak.
There were also some virus clusters with no direct links to China, where authorities were struggling to trace the origins.
In Australia, companies including shopping centre owner Vicinity Centres, casino group Crown Resorts and theme park operator Village Roadshow have warned the virus outbreak is taking a toll as tourist numbers slide.
Others to warn of an impact included BlueScope Steel. Reporting a 70 per cent drop in first-half net profit on the back of weaker steel prices, BlueScope warned the virus outbreak would “heavily impact” its Chinese business.
with AP, AAP
Originally published as Australian share market tumbles for second consecutive day
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