Australian Stocks extend slide on global rout

Source TheAge

Australian shares fall sharply after overseas markets dived overnight, while worries about global economic growth sent the Aussie dollar to a 3-year low.

The benchmark S&P/ASX200 index was down as much as 3.3%, or 148.5 points, to 4391.9 in early trading. It is the lowest point since October 31, 2005.

The Australian dollar traded at 72.18 US cents, after tumbling to as low as 69.85 US cents overnight, its weakest since September 2004, according to Bloomberg. It also plunged against the yen, dropping to as low as 70.32, its lowest since March 2003, before recovering some of the loss to trade recently around 73.60 yen.

A sharply weaker Aussie dollar, though, is unlikely to deter the Reserve Bank from cutting interest rates by half a percentage point later today, to stimulate the economy amid a slump in domestic demand.

The market is expecting the central bank's board to trim the interest rate to 6.5% from 7%, its largest rate cut since April 2001. The RBA's decision will be announced at 2.30pm.

Broad retreat

All sectors in the sharemarket were down, with energy the hardest hit. The energy sub-index plunged as much as 6%, and the materials sub-index retreated 3.8%. The financials lost as much as 3.2%.

ANZ Bank fell as much as 3%, or 55 cents, to $17.50, the Commonwealth Bank also lost 3%, or $1.32, to $42.68, NAB lost 3%, or 77 cents, to $24.78 and Westpac lost as much as 2.2%, or 50 cents, to $22.00.

Investment bank Macquarie Group fell as much as 6%, or $2.10, to $32.90, while smaller rival Babcock & Brown lost as much as 18%, or 29 cents, to $1.32.

In the resources sector, BHP Billiton was down as much as 3.3%, or 99 cents, to $28.80, while Rio Tinto lost as much as 3.5%, or $2.98, to $81.50. Fortescue Metals Group extended its recent rout, plunging 12%, or 51 cents, to $3.90.

Woodside Petroleum shaved the most off the ASX200, losing as much as 8%, or $3.93, to $45.07, despite oil prices gaining for the first day in five. Santos was down as much as 6.2%, or $1.06, to $16.14.

'Raw fear'

"What we're seeing now is irrational fear," said Peter Strachan of StockAnalysis. "It's raw fear."

"Once people get over that, from the Australian point of view, things aren't that bad."

Not only does Australia boast four of the highest-rated banks in the world, even the plunging Australia dollar has kept commodities prices buoyant in local-currency terms, he said.

"Certainly the falling Australian dollar will offset falls in Australian commodity prices," said Lachlan Shaw, commodities strategist at CommSec.

"Particularly for iron ore and coal price contracts which extend out to March 2009."

The effects of the plummeting Australian dollar depends on the company and their foreign exchange hedge book.

"The exact timimg depends of the benefit depends on each company's circumstance."

"But certainly a falling Australian dollar is good for exporters."

The price of nickel fell down US$900, to US$14,250 a tonne overnight. However, this morning in Australian dollars, it actually gained $304 to $19,880, Mr Strachan said.

Copper, zinc and aluminum recorded the same disparity in price movements, falling in US dollars but gaining in Australian currency.

"It's illogical to sell Australian metals stocks because at the end of the day, they have costs in Australian dollars."

"You're paying wages in Australian dollars and getting paid in Australian dollars."

Gold miners were mixed, with Lihir up as much as 1.6%, or 4 cents, to $2.55, and Newcrest down as much as 7.3%, or $1.94, to $24.50.

Read more here.