The Australian share market has fallen sharply in early trade, following a steep fall on Wall Street on Friday and a further plunge in crude oil prices.
The falls for local shares would be much steeper if it was not for strong performances by supermarket giants Woolworths and Wesfarmers.
Woolworths shares were up 7.4 per cent to $24.33 after announcing that it would assume full ownership of its Masters hardware joint-venture with US company Lowe’s, before selling or shutting down the unprofitable chain.
Wall Street has continued to suffer its worst ever start to the year.
The Australian share market is suffering too with the benchmark ASX 200 index losing 7.6 per cent, dragging it down to levels not seen since 2013.
The two major concerns for the market, China’s longer-term economic potential and further interest rate hikes in the United States, are still largely unknown quantities.
“The thing markets hate the most is uncertainty and there’s a lot of uncertainty around at the moment,” said independent economist Saul Eslake.
He said now is not the time to be taking investment risks.
“Now that we are entering a time when US interest rates will probably be going up and when bond markets are at exceptionally low levels by historical standards and thus must be seen as potentially vulnerable to shocks, this is not a period when it’s a good time to be taking a lot of risk from an investment standpoint,” he said.
Market analyst David Buik from Panmure Gordon has been working in the City of London for 53 years. He agreed that it is time to take cover.
“Certainly for the rest of the week it’s tin hat time,” he commented.
Analysts have said that the world’s largest central bank, the US Federal Reserve, has helped create asset bubbles around the world by reducing the cost of borrowing to near zero, a case put to the ABC by investment advisor Marc Faber in a recent interview.
David Buik said the markets simply are not ready higher borrowing costs.
“I don’t think interest rates can go up. I think it would be completely irresponsible if they did,” he argued.
The problem is that the longer global interest rates stay extremely low, the more likely that asset bubbles are to grow and then pop.
Brokers fear resources collapse may spark financial crisis
Stock brokers are also concerned about how falling commodities prices will affect the viability of multinational mining companies and the banks that have lent money to them.
Marcus Padley said a collapse for one or more of these resources giants could potentially dwarf the global financial crisis.
“When someone didn’t pay their mortgage in Florida it led to a global financial crisis, what impact would a major resources company not being able to service its debt have on the financial markets by comparison? Well a lot worse in fact,” he warned.
Likely to influence commodities markets in the short term is the release of China’s latest official economic growth numbers on Tuesday.
We will not know how Wall Street reacts to that data until mid-week, when traders return from a long weekend that has Wall Street shut tonight.
In the meantime, West Texas crude oil had already fallen to $US29.40 a barrel, while the benchmark Brent price was at another fresh 12-year low of $US28.94 a barrel.
The ASX SPI 200 futures index was pointing to a steep fall on the local share market today, down 1.8 per cent to 4,745.
The Australian dollar was also lower at 68.6 US cents.