$40 billion wiped off value of shares as global markets plunge

More than $40 billion has been wiped off the value of Australia’s sharemarket in a brutal morning of trading, as fears about European debt levels, the strength of the US economy and the pace of growth in China send shockwaves through global markets.

The sharp fall in the benchmark ASX 200 index – down 3.2% in morning trade to 4307 points at 11:30 – was not unexpected after a horror night on Wall Street on Friday.

The Dow Jones Industrial Average fell 3.2% to 9931.97 – below the all-important psychological 10,000-point barrier after poor jobs data and on-going concerns about the impact that the European debt crisis may have on the financial and banking sector.

Those concerns are also buffeting the Australian market, and few of our blue chips have been spared.

Shares in financial services group AMP have fallen 4.8% in morning trade, while ANZ and BHP Billiton are down 3.7%, Commonwealth Bank was down 3.4%, National Australian Bank was off 3.5% and Westpac plunged 3.6%.

Woolworths was the best-performed of the majors, with its shares of just 0.7% to $26.81.

So what’s got investors so worried? Unfortunately, this list is long:

• Fears that some European countries could default on their sovereign debt were heightened on the weekend when Hungary said it was the latest country to face a debt crisis.
• The US economic recovery still looks painfully weak. The bad news on Friday was jobs data – while employment rose 431,000 in May, 411,000 of those jobs were temporary hirings for the US Census. Private sector employment grew by just 41,000, far lower than the forecasts of 180,000 new jobs.
• Fears of sudden Chinese Government intervention to slow that country’s economy would be bad news for the global economic environment, and particularly worrying for Australia which relies heavily on that market.
• Concerns about the implications of the Resources Super Profits Tax on Australian shares.
• Concerns about the patchy economic recovery in Australia and the outlook for particular sectors such as retail, transport and construction.

With most of these issues unlikely to be resolved in the short-term, the volatility seen in the market is likely to continue.

Market watchers will be studying the US market closely tonight. Further falls on Wall Street would lead to further falls in Australia, while strong buying will soothe global markets.