The Australian market has so far this month lost 8.5% in value, the biggest monthly fall since 2008, with another six trading days to go before the end of August.
And the local market is expected to have another poor trading day today after Wall Street lost another 3.2% on Friday.
The gloom from global markets, driven by pessimism for China’s economy, fears of further disruption from the Greek economy and uncertainty over when interest rates will rise in the US, dragged Australian shares down 2.7% last week.
Since a high in April, when the S&P ASX 200 index almost hit 6000, the market is down 13%. Much of the fall is down to the major banks, a big component of the index, which have lost about 2.8% this month.
The thought here is that global unrest in markets drags down consumer sentient which then dampens business at the banks.
“This is no surprise given the banks are highly leveraged to the Aussie consumer,” says Angus Nicholson, market analyst at IG. “This sort of global market volatility inevitably hits consumer sentiment as consumers’ investment portfolios are impacted.
“Housing loan growth may well be hit as consumers are less inclined to make major purchases.”
Shane Oliver, chief economist at AMP Capital, says the markets are likely to see a further correction in the next few months.
“We are still in a seasonally weak period of the year for shares, uncertainties regarding China and the emerging world are likely to intensify in the short term posing risks for global growth and the US share market has only really just joined in the correction,” he says in a note to clients. “Worries regarding a Fed rate hike in the run up to its September meeting are certainly not helping.”
And the annual results being announced by ASX listed companies aren’t helping the confidence of local investors who now want to see overperformance, not just hitting profit targets, before buying in.
Here’s the scorecard for results so far this season:
With about two-thirds of companies reporting so far, 43% have beaten expectations and 60% have seen profits rise from a year ago.
“It’s well down on what we have been seeing in the last few reporting seasons,” says AMP’s Oliver.
The mining companies are having a hard time of it as they try to deal with a low commodity price world by increasing production and lashing costs. However, profits are still growing outside the resources sector by around 7%.
And the majority of companies are reporting increased profits, as this chart shows: