Golden summer turns whiter shade of pale

Published in The Age, March 2007 by Vanessa Burrow

Just five days ago the Australian sharemarket recorded its highest close and the term ‘golden age’ was being bandied about.

The benchmark S&P/ASX index of Australia’s top 200 companies stood comfortably above the 6000-point mark and the international economic outlook was rose coloured.

Then came Tuesday’s Chinese sharemarket plunge, set off by the Government’s decision to stamp out illegal trading practices, rumours of a capital gains tax and a possible lift in interest rates.

In the background were concerns about Iran’s nuclear ambitions and continuing conflict in the Middle East.

And all of a sudden, worries that the US economy was stalling seemed well founded after somewhat vague comments from former Federal Reserve chairman Alan Greenspan about a possible recession.

The Shanghai Composite Index, which includes domestically and internationally available shares, dropped almost 9 per cent. And minus signs were in front of the daily figures of virtually every market around the world.

As the Australian sharemarket opened on Wednesday, the biggest of the online trading sites buckled under the record volume of orders from people logging on to sell their shares.

The Australian Stock Exchange handled a record 364,661 cash trades with a total value of $9.1 billion, a 36 per cent increase on the previous record set just the day before.

The weight of selling sent the index down more than 200 points, from where it steadied slightly to end the day down 161.3 points. More than $33 billion had been stripped from the market.

‘All the movement was in the first 15 minutes,’ said Wealth Within chief analyst Dale Gillham. ‘That tells me there was a lot of panic selling.’

Things haven’t recovered since and, according to ABN Amro Morgans chief economist Michael Knox, the market will probably be in the doldrums, experiencing ‘downward pressure’, for four to six weeks.

The S&P/ASX 200 finished the week at 5786 points, down a further 46.5 from Wednesday’s close despite no new economic data pointing to impending disaster.

The dollar has fallen US1? or 1.2 per cent, and interest rates are on hold.

Most analysts agree some ‘correction’ in the sharemarket was due to keep stock prices in the ‘fair value’ range.

According to the Morgan Stanley Capital International Index, world sharemarkets climbed almost 4 per cent in the year to February 26.

Taking this week’s losses into consideration, they have gone backwards by just 0.4 of a percentage point.

And the MSCI China A Index, which includes only domestically available stocks, has experienced more than 20 per cent growth so far this year, even after Tuesday’s falls.

The Shanghai Composite Index fell almost 5 per cent on January 31 and almost no one paid attention. ShareFinder managing director Gary Stone said the Australian market was ‘taking a breather’ but investors should still be on the lookout for buying opportunities.

‘Over the coming weeks the market will retrace then settle as investors’ fears subside,’ he said.