Australian shares finished another dismal week deep in the red, sliding into bear territory as worries about the health of major global banks sparked a selloff in the local big four.
Despite Chinese markets being closed this week for New Year celebrations, investors still had plenty to fret about, from fears of a global economic slowdown, to concerns about central banks introducing negative interest rates and more volatility in oil prices.
Hopes that US Federal Reserve chair Janet Yellen could bring some relief in her parliamentary hearings during the week by ruling out near-term interest rate rises were dashed.
While Ms Yellen said the US central bank was not on a “pre-set” path to return policy to “normal” given a worsening meltdown in global stock markets, she said she still expected the Fed will gradually raise interest rates this year, given a strong US labour market and steady economic growth.
It was also the first major week of earnings season, but even some of the more promising results couldn’t cut through the global gloom.
“The market is just a fearful place at the moment and short sellers are having a field day,” said Chris Weston, chief market strategist at IG Markets. “There’s lots of confusion and panic.”
The benchmark S&P/ASX 200 index dropped 1.2 per cent on Friday and 4.2 per cent for the week to 4765 points, its lowest close in 2-1/2 years.
The index has lost 11.6 per cent in 2016, as the selloff that greeted investors at the start of the year continues into a second month. It’s also dropped more than 20 per cent since its recent highs last April, fulfilling the conventional definition of a bear market.
The broader All Ordinaries Index slipped 1.1 per cent on the day and 4.2 per cent over the five sessions to 4816.
Financials were the biggest drag on the market, falling 5.8 per cent over the week. The big four banks were swept up in a global selloff after a severe slump in Deutsche Bank’s share price on Tuesday, as investors fretted over the bank’s capacity to repay certain bond coupons.
On Friday, the big four banks all fell between 1.3 and 2.5 per cent, while over the week Commonwealth Bank of Australia fell 4.3 per cent to $73.33 and Westpac Banking Corporation lost 7.6 per cent at $28.06. ANZ Banking Group was down 8 per cent to $22.18, and National Australia Bank was down 8.8 per cent to $24.14.
Reserve Bank of Australia governor Glenn Stevens’ assurance on Friday that funding markets were stable did little to alleviate the stress and financials finished the week decidedly down.
Energy stocks also weighed heavily on the market, as investors remained unsure about the direction of the oil price. That said, oil rallied hard on Friday afternoon, rising nearly 6 per cent in response to reports of a possible OPEC supply deal.
But the commodity rally didn’t spill over into energy stocks, and Australia’s biggest oil producer Woodside Petroleum closed the week 2.4 per cent down to $26.61.
There were a few bright spots this week though, notably gold stocks after the spot price of gold reached a seven-year high.
Australia’s biggest gold producer, Newcrest Mining, closed down 0.2 per cent at $16.30 on Friday, but rose 9 per cent over the week. Fellow gold producers Evolution Mining and Northern Star also received a boost for the week, gaining 22.7 per cent to $1.97 and 16.4 per cent to $3.77 respectively. The spot price of gold was fetching $US1235 an ounce on Friday afternoon.
BlueScope Steel performed strongly on Friday, jumping 14 per cent on an earnings upgrade. The steel maker promoted earnings expectations by $50 million to around $230 million on Friday, citing stronger sales in Australia, early delivery of cost reductions and stronger margins as the catalyst. The stock closed at $5 on Friday afternoon.
Cochlear also posted an earnings upgrade, bumping the shares above $100 for the first time and closing the week 11.23 per cent higher at $103.20.
Resources giant Rio Tinto killed off its progressive dividend policy, after its full-year earnings collapsed by half to $US4.5 billion. Investors welcomed the news, saying it should take the pressure off the company’s balance sheet.
The share price fell 2.8 per cent over the week and closed at $40.47 on Friday. Main rival BHP Billiton fell 0.98 per cent on Friday after a 6.9 per cent fall over the week, to close at $15.09, while iron ore miner Fortescue Metals Group closed down 14.51 per cent to $1.62.
Woolworths fell 1.9 per cent on Friday and 6.7 per cent for the week, to $22.17, while Wesfarmers, owner of Coles, fell 0.7 per cent for the day and 1.2 per cent for the week, closing at $42.43.