Australian shares plunged on Tuesday after Wall Street suffered its worst day this year following a sharp escalation in the US-China trade war.
The benchmark ASX 200 had dropped 192 points (or 2.9 per cent) in the first 10 minutes of trade on Tuesday.
If sustained, that would have been the worst one-day decline for the ASX 200 in more than a year — since the “bondcano” falls on February 6, 2018.
However, its losses had moderated by 1.40pm (AEST), down 2.1 per cent to 6499.
Companies on the broader All Ordinaries index had lost about $57 billion from their market value in early trade.
Tuesday’s Australian share losses were similar to counterparts in the Asia-Pacific – Tokyo’s Nikkei fell 2 per cent and the Shanghai Composite 2.3 per cent, while Hong Kong’s Hang Seng dropped 1.9 per cent after that city was racked by more protests yesterday.
The Australian dollar, meanwhile, lifted back to 67.88 US cents having earlier traded within a whisker of decade lows.
Best and worst performers
Every sector posted heavy losses, with technology (-4.5 per cent), health care (-3.6 per cent) and energy (-3.2 per cent) being the weakest performers.
On the flipside, the sectors that sustained the least damage were materials (-1.3 per cent) and telecommunications (-2.3 per cent).
Only 15 stocks on the benchmark index were trading higher – particularly miners of gold and rare earth minerals, including Lynas Corporation (+5.9 per cent), Northern Star Resources (+1.9 per cent) and St Barbara (+1.4 per cent).
Technology companies Xero (-7.5 per cent), WiseTech Global (-7.7 per cent) and Afterpay (-5.8 per cent) were among the worst performing local stocks.
What caused the market sell-off?
China has retaliated against the latest round of US tariffs by devaluing the yuan to its lowest level in more than a decade.
Allowing its currency to drop is one way for China to make its exports cheaper, partially offsetting the harmful impact of US tariffs.
“This is where it will annoy [US President Donald] Trump because his mechanism … of making things better for America can be [easily] countered by a currency movement like what China is doing,” said Evan Lucas, chief investment strategist at InvestSMART.
China’s payback against the US led to the Dow Jones index plunging 768 points and Wall Street’s benchmark S&P 500 index falling 3 per cent on Monday (local time).
The massive falls in New York were mirrored in European markets overnight, with London’s FTSE losing 2.5 per cent.
Mr Trump condemned China’s latest move, via Twitter, and accused its trade rival of “currency manipulation”, while the US Treasury officially declared China a currency manipulator.
Analysts say that the massive global sell-off is happening because Mr Trump’s recent tariff announcement caught the market by surprise.
Last Friday, Mr Trump said the US will impose a 10 per cent levy on $US300 billion worth of Chinese imports from September 1.
Essentially, that is the value of all remaining Chinese goods that have not already been penalised with tariffs.
“No more than four-and-a-half [or] five weeks ago, we had the G20 summit – we actually saw Trump and [China’s President] Xi shake hands,” Mr Lucas said.
“You actually saw the President [Trump] saying he wouldn’t put tariffs on Chinese exports in the near future.
“He’s clearly broken that promise. That’s why what happens in the next three months is very hard to see, and it’s quite opaque.”
The additional tariffs are likely to have a significant impact on China’s economy,” said Pepperstone’s head of research Chris Weston.
“Most [economists] estimate the new tax will reduce China’s exports by around 2.5 – 2.7 per cent, and act as a headwind by some 50 basis points to growth, with an unwelcomed negative impact on employment.”