Share market meltdown: frenzied sell-off in its seventh day

THE Australian share market has dropped to the lowest level in two-and-a-half years, as China trouble hits home.

THE Australian share market has dropped to its lowest level in two-and-a-half years, with a frenzied sell-off in its seventh day.

The market has fallen below the 4900 mark, dropping more than two per cent in a morning bloothbath as fears mount over the Chinese economy.

The benchmark S&P/ASX200 index skidded to 4,880.1 at 11.20am, its lowest point since July 2013, before rallying back above 4,900 soon after.

At noon, the S&P/ASX200 index was at 4,907.8 points and the broader All Ordinaries index at 4,967.4 points.

The falls have stripped more than seven per cent from the ASX200 since the beginning of the year, meaning a loss of about $103 billion in market capitalisation.

Today’s rout comes as investors prepare for another week of uncertainty, amid concerns about China’s growth, markets and currency.

A rare bright spot is JB Hi-Fi, with rival Dick Smith’s collapse pushing its share price up two per cent since the year’s trading began.

The banking, resource and energy sectors were the hardest hit after another tumble in commodity prices, while gold producers were among the only strong performers — with investors piling into this safe haven asset class.

Oil players Santos and Origin were down more than four per cent, while mining giants BHP Billiton and Rio Tinto also lost more than four per cent.

The banks were also well down, with best performer ANZ down 1.33 per cent.

As an indication of how dire is sentiment, only seven stocks on the ASX200 have risen. Apart from two flat trades, every other company has been sold off.

Credit Suisse’s Damien Boey said the rout came as investors grappled with unclear Chinese data, continuing with last year’s downward slide in banking and resource stocks.

“The baggage from last year is still carrying over to this year,” Mr Boey told Fairfax media.

“Most notably concern about China where it’s difficult to get a clear read on the economy. The official economic data is known to be very smooth and so you can’t take the numbers at face value. Investors are going after what went well last year.”

China’s central bank has today strengthened the yuan, and the market reacted with a small uptick in the Australian dollar and local stocks, but it’s yet to be seen whether a sustained recovery will get underway.

Chinese trade data to be released on Wednesday is expected to show further declines in exports and imports, while weekend data showed Chinese consumer inflation was stuck at a subdued 1.6 per cent in December, with producer prices down a steep 5.9 per cent on the year.

A major devaluation of the yuan triggered turmoil on global markets last week, with Wall Street was down 1 per cent on Friday night.

IG market analyst Angus Nicholson told The Australian investors needed to see “some consistent intervention by the Chinese government in the FX and equity markets” to shift their confidence.

“If we do start seeing that today and tomorrow, that might start changing investor perception and perhaps bring a bit more buying to the market,” Mr Nicholson said.

He said whether the Australian market finished above the key 4,910 level would be crucial for investor sentiment.

Amid last week’s rout came a grim prediction from one of the world’s richest men, who warned that we could be headed towards another global financial crisis.

Billionaire investor George Soros said on Thursday that a repeat of the market-decimating GFC of 2008 could be on its way.

Speaking at an economic forum in Sri Lanka, the 85-year-old drew similarities between the current economic environment and that preceding the financial crash of 2008.

“When I look at the financial markets there is a serious challenge which reminds me of the crisis we had in 2008,” he said.

“Unfortunately China has a major adjustment problem and it has a lot of choices and it can actually transfer to the rest of the world its own problems by devaluing its currency and that is what China is doing.”

His speech came after China suspended its stock market when shares fell more than seven per cent for the second time last week.