In­vestor shock at mar­ket nose­dive

Mercury (Hobart) - - BUSINESS -

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

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