ASX to take a hit for third day straight

Australian shares face another hammering after big falls on US equity markets overnight following a warning for Americans to prepare for the coronavirus.

The SPI200 futures contract was down 153 points, or 2.24 per cent, at 6,673 at 7am AEDT today, pointing to another sharp fall when the local market opens.

Local stocks lost $37.8 billion in value on Tuesday in the Australian share market's second worst day of 2020, following Monday's 2.25 per cent plunge.

It comes after Wall Street stocks sank deeper into the red Tuesday afternoon on mounting fears over the coronavirus and its potential to derail global growth.

The market boards at the Australian Stock Exchange are set to show more dips. Picture: AAP
The market boards at the Australian Stock Exchange are set to show more dips. Picture: AAP

After starting the session higher, major US indices quickly reversed course and by mid-afternoon were on track for a second straight rout as US public health officials warned about an inevitable outbreak here and major companies cited the illness as a threat to their business performance.

Near 7.10am AEDT, the Dow Jones Industrial Average was down 2.7 per cent, or 750 points, at 27,210.48.

Oil prices also continued their fall on fears of a demand hit from the flu-like virus that has infected more than 80,000 people.

The Australian dollar was buying 66 US cents at 7am AEDT today, down from 66.12 US cents on Tuesday.

 

 

 

 

Meanwhile, Treasurer Josh Frydenberg is remaining coy on whether the economic impacts of the coronavirus could compromise his government's planned budget surplus or even cause a recession.

Asked whether a recession might be on the cards in Australia due to the virus, Mr Frydenberg has said "that's not the word that I would use".

"What I would say, though, is that the economic impact is very significant already and of course the virus continues to evolve," he told Sky News today.

SHAREMARKET COULD DROP BY 20 PER CENT

It's completely normal for share prices to be volatile and sometimes suffer sharp falls of the kind we've seen on the ASX in the past two days.

What isn't normal is how Australian and global shares seemed immune to coronavirus concerns over the past couple of months and continued reaching record highs.

But not anymore. Australian stocks have slumped four per cent since the start of the week, while US, British and European shares fell three to four per cent in just one day.

As the deadly virus spreads beyond China, financial markets finally pressed the panic button - spooked by fears that more countries will close borders and damage the global economy.

Specialists Mario Picone, Dilip Patel and Glenn Carrel, left to right, react as stocks tumble on the New York Stock Exchange. Picture: AP
Specialists Mario Picone, Dilip Patel and Glenn Carrel, left to right, react as stocks tumble on the New York Stock Exchange. Picture: AP

CMC Markets and Stockbroking chief market strategist Michael McCarthy said while the virus has had a "dreadful human cost", markets are more interested in economics and are now worried that global trade could grind to a halt.

He said the sudden change in sentiment suggests further falls could lay ahead for stocks, while AMP Capital chief economist Shane Oliver said the spread of the virus has increased the risk of a sharemarket fall near 20 per cent.

However, Dr Oliver's "base case" of containment is for an economic rebound in the June quarter.

He said whether markets fall another five per cent, 20 per cent or no further, it makes sense for investors to "turn down the noise around the virus and stick to a long-term investment strategy".

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It’s been a difficult week for specialists on the floor of the New York Stock Exchange. Picture: AP
It’s been a difficult week for specialists on the floor of the New York Stock Exchange. Picture: AP

Mr McCarthy said corrections are a normal part of investing and we have been due for one anyway.

"Investors shouldn't be too concerned - this is not the end of the world," he said.

Super fund members will take a hit if the market falls continue, but they generally have decades to ride out the ups and downs of financial markets - and shouldn't deviate from their long-term plans.

Investors and super fund members who sold out of shares at the bottom of the Global Financial Crisis - when Aussie stocks had plunged 55 per cent - missed out on the decade of strong returns since then.

Other global health scares such as SARS and swine flu had short-term impacts on sharemarkets before they recovered quickly.

 

If you're actively trading shares, tread carefully and be wary of stocks that are already under pressure as they could be among the hardest hit in a broader downturn.

Travel companies have already been stung - Helloworld Travel shares are down 17 per cent since January and Flight Centre has dropped 19 per cent.

Even companies likely to do well from the virus - biotech giant CSL and medical gloves maker Ansell - have fallen in the past couple of weeks.

The uncertainty for financial markets now mirrors the uncertainty face by the global community around the virus's next moves.



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