Sea of red swamps Australian stocks as recession looms
As the coronavirus outbreak slams consumer confidence, the Australian Stock Exchange has been dragged into a “bear market” and Standard & Poor’s predicts the economy will slide into recession by June.
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The nation’s benchmark share index has slumped into a bear market as concerns about the coronavirus fallout intensify and panic selling again sweeps the stock exchange.
Weathering its 11th session in the red from the past 14 trading days, the ASX 200 shed 3.6 per cent on Wednesday, giving up everything it had gained in a rebound rally on Tuesday.
Following a surge in markets on Wall Street the previous night, the index forged higher in early trade only to crunch into reverse then grind downward throughout the day.
It lurched lower still on the closing bell, taking to $64 billion the amount cut from the value of the nation’s biggest listed companies.
Since February 20, when the index was at a record high, it has fallen 20.05 per cent — exceeding the 20 per cent level broadly regarded as the threshold for a bear market. In all, $430 billion has been ripped from the value of the companies in the index.
The sell-off on Wednesday was the second worst since the rout started. It came amid concerns a US economic stimulus plan unveiled by the White House overnight Tuesday — albeit not by President Donald Trump, as had been expected — was light on detail and would face resistance from Senate Republicans.
It also came amid another series of troubling economic developments at home and abroad.
Late on Wednesday, after the Australian market closed, the UK central bank slashed its base rate in an emergency measure to prop up the British economy as the spread of coronavirus takes a heavy toll.
Following an unscheduled committee meeting, the Bank of England cut the base rate — its equivalent of the Reserve Bank’s cash rate — by two thirds, from 0.75 per cent to 0.25 per cent, matching its all-time low.
It is the first time the Bank of England has cut rates between scheduled meetings since the global financial crisis.
Separately on Wednesday, RBA governor Guy Debelle warned the impact of coronavirus on tourism and education alone would cut about 0.5 percentage points from Australia’s economic growth rate this quarter.
Dr Debelle, at a business conference, said the outlook was “too uncertain” to make projections for next quarter.
Heavyweight credit rating agency Standard & Poor’s was less hesitant. Ratcheting up its warnings about the fallout from the spread of the COVID-19 virus, S&P Global Ratings said it believed Australia was sliding into recession.
In a research report, S&P analysts forecast the economy would shrink this quarter and next as the virus delivered a jolt.
The nation would accordingly be in a “technical recession” — two or more consecutive quarters where gross domestic product falls — for the first time since 1991.
“We believe Australia’s economy will move into recession by June 2020, and grow just 1.2 per cent in 2020 before rebounding,” the analysts said.
“This is the weakest economic outlook in 20 years and means the COVID-19 outbreak would be a greater economic shock to Australia than the global financial crisis, when growth fell to 1.6 per cent in 2008.”
They cautioned the forecast did not factor in stimulus measures due to be announced today by the federal government, and such measures may help the nation sidestep recession.
As the chief executives of the major banks met Federal Treasurer Josh Frydenberg to discuss their strategies in the face of the coronavirus outbreak, all four lenders were again buffeted in the market sell-off.
Shares in the Commonwealth Bank were hardest hit, sliding 6.6 per cent, but National Australia Bank has sustained the most damage since the rout began, slumping 27.8 per cent.