Investor shock at market nosedive
AUSTRALIA’S share market lost almost 5 per cent of its value this week as investors followed the US and dumped stocks. Analysts say shareholders were rattled by three issues: potential for faster rate rises in the US, the China-US trade war and the threat of tougher government regulation for big US technology companies. Rising interest rates push up returns on bonds, broadly IOUs issued by governments and companies, and can make such investments more attractive than shares. The trade war with China threatens the profits of US export companies, and tougher regulations for tech companies raise doubts about the outlook for their earnings and the true value of their shares. Higher interest rates mean business is forced to pay more for debt, reducing profits. The volatility this week should not be a surprise, says AMP Capital chief economist Shane Oliver. The conditions that are helping win more investors over to bonds have been building for more than a month, he says. “Although our Reserve Bank has interest rates on hold and Australia is not in a trade war with China, Australian investors worry that impacts on the US will affect the global economy and could mean less demand for our exports generally,” Dr Oliver says. The US market is now down about 7 per cent from its September high, while Australian shares have also fallen 7 per cent since their August high.
— KARINA BARRYMORE