Local stocks plunge 4% on Wall Street crisis: Economy roundup

It has been an ugly few hours for Australian investors, with the local sharemarket plunging more than 4% on news that the US Government’s $US700 million bailout package was rejected by Congress.

It has been an ugly few hours for Australian investors, with the local sharemarket plunging more than 4% on news that the US Government’s $US700 million bailout package was rejected by Congress.

The benchmark S&P/ASX200 fell 4.4% or 213 points in early trade, to be at 4595.4 points at 11:10am AEST, following a dreadful night on Wall Street.

The Dow Jones Industrial Average shed 6.89% or 777.68 points, the biggest ever single-day fall in terms of points. The tech-focused Nasdaq Index plummeted 9.1%, its biggest daily loss since the dot-com bubble burst back in 2001. Latin American markets fell 13%, while in Britain the FTSE index slumped 5.3%.

In Australia, the heavyweights of the local market – banks and mining stocks – have been hit hardest.

BHP Billiton has slumped more than 6.5% on fears that a slowing world economy will reduce demand for commodities. Fortescue Metals, majority-owned by Australia’s richest man Andrew Forrest, has plunged 13.6% in early trade.

The market’s whipping boy of the last few months, investment bank Babcock & Brown, has again been smashed by investors, with its shares down around 20%.

The big banks, which would have been praying the bailout package would go through and unfreeze global credit markets, have also been battered. ANZ is down 5%, Commonwealth has dropped 3.5%, National Australia Bank is down a whopping 6.5% and Westpac is off 6%.

Financial services company AMP is down 6.7% while Rupert Murdoch’s News Corporation is down 5.6%.

So where will things head from here? The consensus of market watchers is clear; down.

Veteran business commentator Robert Gottliebsen from Business Spectator predicts a sustained period of selling (see accompanying story in this section), as does broker Charlie Aitken from Southern Cross Equities.

“While we may well get an oversold situation in the next few days, the likelihood of a quick recovery from these events is extremely low. Now we have to take our economic and market medicine,” Aitken wrote this morning.

“We simply have to acknowledge the magnitude of these events and work our way through their ramifications. Consensus earnings forecasts for all Australian companies are too high and will be lowered over the next few weeks.”

That will only cause more panic among local investors.