Fears of recession fuel dive
Published in Courier Mail, October 2008
by Josh Robertson
THE spectre of global recession saw investors flee Australia's much-vaunted mining sector in droves yesterday, sending the sharemarket plunging back towards the depths of last week's panic.
About $86 billion in value was shredded with the All Ordinaries sinking 6.66 per cent back to a near T/2-year low of 3988.1 points.
Pessimism about Chinese growth and commodity demand generally wiped out most of this week's rally, resourcerelated stocks making up 20 of the 25 steepest falls within the S&P/ASX200, which also slumped 6.6 per cent to 4013.4.
Mining giants BHP and Rio were pummelled, losing 13.13 per cent and 15.91 per cent respectively, together accounting for more than a quarter of the market's plunge.
Iron ore exporter Fortescue Metals was smashed the second day in a row, losing 10.14 per cent, while a more than tenfold first-half profit increase could not save Brisbane-based Macarthur Coal from a 13.74 per cent caning.
China's central bank deputy governor Ii Gang said the country's growth would slip into single figures in 2009 at 9 per cent, down from 10 per cent this year and 11.9 per cent in 2007.
However, Aequs Securities institutional dealer Ric Klusman said Chinese growth could go as low as 6 per cent. "If that is the case, even though they have reasonably strong growth it is still a big negative," he said.
Also yesterday, Russian nickel giant OAO Norilsk Nickel said it would leave its Cawse mine in Western Australia out of action and would review its other local operations because of poor market conditions.
This came a day after Rio revealed it might cut spending on its operations with a significant easing in Chinese minerals demand expected for the rest of the year.
Grim economic news saw Wall Street and London investors revert to selldowns overnight, setting the stage for more pandemonium on the local market.
The Dow Jones Industrial Average fell 7.9 per cent on Wednesday, its biggest fall in two decades, after US monthly retail sales fell the furthest in three years and the US Federal Reserve reported tight credit was still harming business.
Falling house prices remain the US economy's achilles heel and many economists say unemployment will go from 6.1 per cent to 9 per cent by the end of 2009.
London's FTSE 100 Index tumbled 7.16 per cent, its fifth biggest ever fall, after jobless numbers hit 1.79 million, rising faster than any time since the 1991 recession.
Bank of England monetary policy committee member David Blanchflower said the 164,000 rise was "truly horrendous and much worse than I had feared".
Total jobless numbers would hit two million by Christmas, he said.
Japan's Nikkei suffered its worst fall since 1987's "Black Monday", ending down 11.4 per cent, while Seoul dropped 9.4 per cent and Hong Kong 4.8 per cent.
"What started as a financial crisis has evolved into an economic crisis, which is now turning into a full-fledged global recession," China International Futures chief analyst Cai Luoyi said.
Wealth Within chief analyst Dale Gilham predicted the All Ords could test a low of 3400 through early next month, before rebounding 30-50 per cent over the following year the same kind of bounce which came after crashes in 1929 and 1987.
"I'm sitting on a bucketload of client money that I want to put into the marketplace and stocks like BHP, Rio, CSL, Cochlear, some of the banks, are all on my hit list of stocks to buy," he said.
