Asx Benchmark Drops 4.4% As Asian Markets Hit Four-year Low

The Age

Friday October 24, 2008

By Vanessa O'Shaughnessy, Investment Reporter

ASIAN markets surrendered to global sentiment, reaching their lowest in four years before reports of yet another US bail-out plan.

Regional stocks capitulated after a gruelling session on Wall Street, where the Dow closed with a loss of 5.7% after being down 7.7%.

The US Government is reportedly discussing a $US40 billion ($A59.4 billion) proposal to help home owners catch up with their mortgages.

But Morgan Stanley Capital International's Asia Pacific Index tumbled to its lowest since May 2004 and Australia's S&P/ASX 200 Index closed 181.7 points, or 4.4%, lower at 3974.4.

"The one thing that has been supporting growth has actually gone into reverse," said Schroders Investment Management's head of Australian fixed income and multi-asset, Simon Doyle, referring to commodity prices.

Base metals keep falling, having already lost 26% of their value this month.

And oil sank to just $US65.85 a barrel in New York, its lowest in 16 months.

ANZ senior commodity strategist Mark Pervan said weakening demand could take the price even lower. Anxiety about US economic growth would affect oil the most because the US was still the largest end-user of oil, he said.

Yesterday, BHP Billiton led the Australian market lower as reports emerged that the European Union might object to its bid for Rio Tinto. BHP retreated 9.4% to just $24.70 and Rio lost $11.45, or 14.6%, to $66.95.

ANZ dropped 99 to $18.01 after announcing full-year profit of more than $3.3 billion, down 21% from the previous year.

And overseas, Swiss investment bank Credit Suisse reported a quarterly loss of 1.26 billion Swiss francs ($A1.61 billion).

Speaking at an adviser briefing in Melbourne, Mr Doyle said the collective efforts of governments, central banks and private investors had not resolved the problems in financial markets, or started an economic recovery.

He expects the Australian economy to "flirt with" recession, even though markets expect the Reserve Bank to cut interest rates with little thought of rising inflation.

"There's nothing like a thumping recession to cure people's worries about inflation," Mr Doyle said.

Meanwhile, former chairman of the US Federal Reserve Alan Greenspan testified to the US House Committee on Oversight and Government Reform overnight.

He was expected to criticise credit ratings agencies and call for tighter regulation of financial companies.

Regulation is also under scrutiny in Australia, where the Government's unlimited guarantee on deposits has led to four of the country's biggest fund providers suspending withdrawals.

Richard Brandweiner, general manager, investments, at Perpetual Investment Management, which is freezing redemptions on seven funds with a total of $2 billion under management, said the money was held in "conservative and high-quality" mortgages.

"The recent introduction of the guarantee on bank deposits ... has incited uncertainty in the market and created a sudden spike in redemptions in the past few days," he said.

© 2008 The Age

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