Shares tumble as all the bears come out

Shares tumble as all the bears come out
May 25, 2010 - 4:15PM

Australian shares tumbled today, hitting fresh nine-month lows as investors remain spooked by euro-zone instability, while rising tensions on the Korean peninsula also discouraged buyers.

The benchmark S&P/ASX200 index closed down 130.1 points, or 3 per cent, at 4265.3, its lowest close since August. The broader All Ordinaries index was off 126.5 points, or 2.9 per cent, at 4286.3.

At home, all the major sub-indexes were down, with energy shares off 3.9 per cent, materials down 3.7 per cent and financials slumping 3 per cent.

The Aussie dollar also resumed its retreat, dropping nearly 2 US cents to sink to 81.3 US cents.

About $150 billion has been wiped from the market this month, with the All Ordinaries off 11 per cent so far - the biggest slide since October 2008 when the collapse of US investment bank Lehman Brothers sent financial markets into a tailspin.

Europe's fumbling response to a debt crisis in Greece and bulging deficits in other euro-zone countries has unnerved markets, and the central bank takeover of a small Spanish lender at the weekend stoked the latest fears of a wider meltdown.

Across the region, other major markets were also sharply lower. South Korea's Kospi Index was down 4.3 per cent after a report said North Korea ordered its military to prepare for war last week. Japan's Nikkei 225 was off 2.7 per cent, with the benchmark indexes in Hong Kong and Singapore both down more 2 per cent.

“It appears that every single bear in Asia is emerging from its caves. It’s the complete reversal of what we’re seeing yesterday,” said Arab Bank Australia treasury dealer David Scutt. “Banks are being smacked. Commodity producers are being smacked. An all-around bad day for the markets.”

Also, short-term banks bill futures were selling off, Mr Scutt said.

"This is another sign that markets are wary of another liquidity crisis forming and mirrors the increase in Libor rates seen overnight in London."

Libor, the three-month US dollar London interbank offered rate - a key measure of the health of the credit markets - rose to 0.5 per cent overnight, the highest since July 2009. The increase suggests that there is growing caution among banks about lending to each other. Libor hit 3.6 per cent at the end of 2008, during the height of the financial crisis.

“Worryingly, the same feature was seen in the months leading up to and following the collapse of Lehman Brothers in 2008.”

Blue chips tumble

The world’s biggest miner, BHP Billiton, fell $1.52, or 4 per cent, to $36.28 and rival Rio Tinto dropped $2.45, or 3.8 per cent, to $61.70.

Iron ore miner Fortescue renewed its criticism of the government’s mining super profits tax plans and said it is likely to delay plans to start paying dividends due to the proposed tax, warning investors its shares could fall further as a result.

The shares duly extended early losses, to finish down 28 cents, or 7.5 per cent at $3.44.

The four major banks closed lower also.Commonwealth Bank was off $1.92, or 3.7 per cent, at $50.31 and Westpac declined 90 cents, or 3.9 per cent, to $22.26. ANZ closed down 56 cents, or 2.6 per cent, at $21.34 and National Australia Bank was 80 cents, or 3.3 per cent, lower at $23.76.

In the energy sector, Oil Search had dipped 26 cents to $5.25, Woodside was down $1.46, or 3.4 per cent, at $41.37 and Santos gave up 54 cents, or 4.4 per cent, to $11.75.

Flight Centre bucks trend

Flight Centre shares rosed 2.9 per cent to $16.80 after the travel firm upgraded its profit guidance for 2010 to a pretax profit of $190 million to $200 million, up from forecasts of $160 million to $180 million.

Healthscope saw its shares slip 1.9 per cent to $5.15, after private equity firm Blackstone Group joined a group bidding $US1.5 billion for the hospital operator, a source familiar with the situation said.

Minara Resources fell 4.5 cents, or 6.3 per cent, to 66.50 cents after it said it is looking offshore to more desirable tax jurisdictions.

Transurban declined 11 cents, or 2.5 cents, to $4.30 after the Takeovers Panel has refused to make interim orders sought to stop a rights issue by the toll roads operator.

Agribusiness and real estate group Ruralco Holdings was steady at $2.50 after it said it expected a solid full year financial result after boosting first half net profit by 23 per cent.

The most traded stock by volume was Australian Mines, with 222.32 million shares changing hands for $222,328 thousand. The stock was steady at 0.1 of a cent.

Preliminary national turnover was 2.26 billion shares worth $5.91 billion, with 250 stocks up, 867 down and 256 unchanged.

Losses 'overdone'

The Australian market has fallen 14 percent from its recent peak in April as the European worries, the Australian dollar's fall and a planned mining tax whacked sentiment.


"It is definitely overdone, the forward P/E of the market is 10 times which is extraordinarily low," said E.L. & C. Baillieu director Richard Morrow.

The long-term average forward price/earnings ratio for Australian stocks is around 14 times.

"People are staring down the barrel at this horrendous tax and everything has gone into abeyance ahead of that," he said.

http://www.smh.com.au/business/markets/shares-tumble-as-all-the-bears-come-out-20100525-w8i2.html