PANIC has again gripped the world's already jittery investors, raising fears that 2010 -- long prophesied as the year of economic revival -- will instead herald a sustained downturn in global sharemarkets.
Concerns over the potential collapse of three major European economies caused markets to tumble yesterday, with Australian investors unable to escape the unmitigated bloodbath.
The local market plunged 2.4 per cent to fall back to levels last seen in September 2009, pilfering a massive $31 billion from investors' pockets.
It was the worst single-day fall in nine months, back when share markets across the world were imploding.
In the space of three devastating weeks of selling, more than 9 per cent has been erased from the All Ordinaries index -- a $114 billion drop that has gobbled up an estimated $44 billion from the accounts of superannuation members.
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Resource stocks were the hardest hit yesterday, with BHP Billiton down 3.51 per cent and Rio Tinto off 5 per cent.Elsewhere, shopping centre giant Westfield fell 5.72 per cent and Macquarie Group shares dove 5.6 per cent.
Across the globe, the US Dow Jones index dropped 2.61 per cent, while London's FTSE recovered late in trade to minimise losses to 2.17 per cent.
Yesterday's carnage, combined with a three-week cycle of irrepressible selling, has many economists erasing previously positive forecasts about 2010 in favour of a bearish stance.
Renowned Morgan Stanley economist Gerard Minack told The Daily Telegraph global sharemarkets could fall as much as 25 per cent across the developed world this year, with Australia unable to escape the fallout.
"We see the rise from March 2009 as a typical relief rally that follows major bear markets,'' he told his clients in a research note. ``After the relief rally there is, on average, a 25 per cent pullback so, technically, a new bear market.
That's what we expect at some stage this year.''
The reason for the latest fear epidemic is, once again, half a world away -- in Spain, Greece and Portugal. So what do those nations' economic misfortunes mean for Australia?
"Diddly squat,'' said one senior economist yesterday. "But they carry the risk of contagion, a collection of bad debt that could once again go viral as it did in the early stages of the Global Financial Crisis.''
The root cause of Europe's sovereign debt dilemma was born out of government intervention or economic stimulus measures. When the proverbial hit the fan during the 2008-09 downturn, governments in Greece, Spain and Portugal were forced to buy private sector assets and their associated debt to stabilise their economy and prevent larger companies failing.
But that good deed has now come back to bite those governments, which are now struggling with runaway budget deficits and unable to pay down their colossal debt.
At best, the European Union will force those countries to buckle down and introduce measures to stop spending, economists say. At worst, a major European economy could collapse and with it create poisonous debt fallout.
AMP Capital economist Shane Oliver views the latest downturn as just another bump on the road to recovery, a "correction in a still rising trend'' and a problem that will be ironed out by government policy.
"Greece and other peripheral Euro-zone countries with debt problems are not big enough to derail the global economic recovery,'' he said.
Financial meltdown
- $31b wiped off the local share market
- 2.4% loss on All Ordinaries on the day
- 1.5c how much the Australian dollar lost against the US dollar
- 3 European countries remain on the financial brink including Spain, Portugal and Greece
- $144b in market losses since the January high
- 4,532.50 All Ords closed down 111.60 points or -2.40% yesterday
- $15b in superannuation lost on the day
Clarcor: Recovery clears path for growth and brighter futureMarket down at close
