THE Australian dollar has fallen to a three month low as concerns about the Chinese economy push the currency and share markets even lower this week.
The Australian share market has slipped below 5,000 at the open, continuing its disappointing week as Wall Street suffered another fall and oil prices slid to a new low. The benchmark S&P/ASX200 index was trading 0.9 per cent lower at 4,967 in early trade on Friday, with most sectors in the red. Overnight, European shares fell sharply, while US stocks ended two per cent lower after China allowed the biggest fall in the yuan in five months, and trade in Shanghai stocks was halted for the second time this week.
Global crude oil prices slid to a fresh 12-year low of $US33.75 a barrel on concerns about an oversupply of the commodity and falling demand from US and China.
“Its a very volatile environment at the moment. The market will remain focused on China and what direction that takes,” CommSec market analyst Steven Daghlian said.
The local market has lost ground for six consecutive days, notching up losses of more than six per cent this week alone, and almost reversing the gains from a Santa rally at the end of December.
Banking shares were among the worst hit, with all four major banks trading between one to two per cent lower.
Mining stocks were mixed, with BHP Billiton trading down nearly one per cent, but Rio Tinto and Fortescue shares were trading slightly higher.
Investors also seemed to be moving to safer havens, with shares in gold miners Newcrest, Regis Resources and Evolution trading higher.
Energy stocks, which have been beaten down severely in the past few months, saw some buying interest. Shares in Santos, Woodside and AGL Energy were up around one per cent each.
Chinese market plunges
The latest trigger was currency jitters, but Thursday’s plunge in Chinese stocks was just one in a series of aftershocks from last year’s boom and bust that could shake markets for months to come.
Investor anxiety over economic weakness and a possible glut of unwanted shares flooding the market have complicated Beijing’s efforts to withdraw emergency controls imposed after Chinese stock prices collapsed in June.
On Thursday, trading halted for the day after a stock index fell 7 per cent a half-hour into the trading day. It was this week’s second daylong suspension after a plunge in prices on Monday tripped the same “circuit breakers” that were introduced on January one.
The benchmark Shanghai Composite Index more than doubled between late 2014 and June, then dived 30 per cent. Supported by a multibillion-dollar government intervention, the market rose almost 25 per cent in the final months of 2015, only to collapse in the new year. That left the main index down 15 per cent from its December peak.
Wild price swings could continue through the first half of this year, according to financial analysts. Even after the latest declines, the Shanghai index is up 36 per cent from October 2014.
The turmoil in China triggered a sell-off in Asian and Western stocks. Beijing keeps its markets sealed off from global capital flows, but due to the vast size of China’s economy, foreign investors watch them closely and react to volatility.
“The market still is trying to find a bottom, and that takes time,” said Chen Yong, a strategist at Lianxun Securities. “The key is to be able to resume normal daily trading, and during that time volatility is inevitable.”
The upheaval disrupted the ruling Communist Party’s plans to use the stock markets as a tool to make China’s state-dominated economy more competitive and productive.
The Indian Telegraph Sydney Australia