Market takes dive amid rate rise talk

THE share market has nosedived on the final trading day of the financial year as investors rushed to take profits amid mounting signs the era of cheap credit is nearing an end.

Almost $28 billion was wiped from the value of Australia’s top listed companies yesterday, following a weak lead from Wall Street and evidence of a growing willingness among central bankers to hike interest rates.

The benchmark ASX 200 index tumbled 1.7 per cent — its worst session for the year — to 5721.5 points, retracing much of the gains made over the previous two days. The pullback also took a little of the gloss off another sparkling financial year for the local bourse, which has climbed 9.3 per cent over the past 12 months, but is just 1 per cent higher since January.

All sectors closed sharply in the red yesterday, with real estate and healthcare the worst hit as investors rebalanced their portfolios.

Earlier, the Dow Jones Industrial Average sank 0.8 per cent, its third-worst session for the year.

Analysts said there was also an overarching sense that as global economic conditions strengthened, central banks were preparing to move away from emergency rate settings in place since the financial crisis, in turn making debt more expensive.

Bank of England governor Mark Carney set the tone on Wednesday when he said the UK’s central bank would debate a hike soon, while his Canadian counterpart Stephen Poloz reiterated his tightening bias, heightening expectations for a July move.

The world’s most powerful central banker, US Federal Reserve chairwoman Janet Yellen, oversaw a rate hike last month, the Fed’s third since December. This week, she gave no indication of a shift from a gradual normalisation of US monetary policy.

CommSec market analyst Tom Piotrowski said: “That normalisation process is an important one and now they’re (central bankers) talking about it, markets being what they are at the moment will focus on it.

“But this sort of talk is a good thing; now we’ve got to hope that inflation can return to the range where it’s a precursor of rate normalisation.”

The benchmark index would now need to deliver “more conviction” to break through the 5800 to 5850point range, with the banking sector a clear laggard, Mr Piotrowski said.