Australian shares shed 3.7 per cent at the start of trade on Tuesday before a spectacular rebound to close up 3.11 per cent at the end of the day.
It came as the local market followed steep declines on world markets overnight, with US shares falling by nearly 8 per cent, and similar losses on European trading floors.
Prices fell so sharply after the opening bell on Wall Street overnight that an automatic halt to trading was called.
The 15-minute pause was triggered by a cut-off mechanism introduced after the Black Monday crash of 1987.
Designed to give investors a chance to catch their breath, it had not been used since 1997.
Plunging oil prices and fears over the widening coronavirus epidemic fuelled the sell-off. In Australia, it was led by banks, energy and health stocks, according to CommSec.
Most of the big banks took a hammering, with NAB, ANZ and Westpac all falling below $20 a share, but recovered with the market later in the morning.
Qantas also took a hammering. Its shares plunged more than 7 per cent after it announced more cuts to international flights.
By the close of trade, they had rebounded in step with the broader market but were still some way from December’s lofty heights.
Fears for oil prices stepped up after the OPEC+ alliance between Saudi Arabia and Russia collapsed at the weekend, with both countries expected to ramp up production in a stunning reversal of policy.
Brent crude futures, which had traded as high as $US65 a barrel as recently as January, plunged from $US45 a barrel on Friday to about US$32 at 1451 AEDT on Monday.
The ASX energy sector had plummeted 19 per cent, more than twice the dive of any other sector.
“It’s just absolutely amazing,” said Stephen Innes, a Thailand-based Asia Pacific Market strategist at AxiCorp.
“Investors are absolutely shell-shocked.”
They likely went to bed on Sunday night thinking there could be blood in the streets and awoke to find their nightmare fully realised, he said.
Oil has such a breadth of significance across a range of assets,” Mr Innes said.
“It touches gold, it touches currency, it touches stock markets, it basically touches every asset class. You have to respect it.
“We have a big problem on our hands right now.”
Still it could mean good news for Aussie motorists, with CommSec chief economist Craig James predicting petrol prices could also drop dramatically.
The Australian market’s surprise recovery on Tuesday came after US President Donald Trump said a stimulus package to be announced on Wednesday (AEDT) would include payroll tax relief and assistance to workers to target the economic fallout from COVID-19.
The Australian dollar was caught in the sell-off and fell nearly 1 per cent overnight to just below 66 US cents.
On Tuesday, Westpac said the dollar would “continue to be buffeted by COVID-19 concerns”.
Meanwhile, regulatory agencies have said they have plans to ensure they can react to further market falls.
An ASX spokesman said Australia’s stock exchange did not have a circuit-breaker like that that kicked in on Wall Street.
“Instead, we have AOTs – anomalous order thresholds – that calculate reference prices for all stocks every minute and prevent the placing of aggressive orders, [like an order that will transact] 10 per cent or more outside this reference price,” he said.
He said the ASX was in close contact with bodies such as the Australian Investments and Securities Commission and the Reserve Bank to monitor the virus outbreak and its impact on markets.
The ASX is also speaking to businesses about their plans and preparations for a wider outbreak.
“As a market operator, we are closely monitoring market orderliness and the responsiveness of our risk management processes to changing customer exposures during the heightened volatility,” he said.