SYDNEY, Australia – With the increasing scare over the coronavirus pandemic, the Australian share market is showing a real crisis.
This week alone, the Australian stock market went down by over $232 billion. However, that isn’t the worst thing as the market is still looking towards failing index devastation. The dilemma that the stock market is experiencing during these trying times has been extreme.
The panic over the spreading coronavirus caused a selling sentiment in the market, which led to a loss in Australian shares of around $232 billion this week alone. It was a massive sell-off and only a few short from the worst fall for the Australian share market history following the late rally on Friday.
This week alone, there are already more than 7% of declines in daily trading sessions in the market. The recent downtrends are setting new records in the post-Global Financial Crisis.
The record high for the index was on February 20, reaching as high as 7,2897.7 points. However, the figure was a long time ago considering the market’s recent performance. Over the last couple of weeks, there was a loss of around $259 billion worth of share value.
However, the dilemma in the stock market in recent weeks is not only happening in Australia. A lot of other indexes in the global market is experiencing the carnage as well. There was also a massive 27% decline for the S&P 500 index in Wall Street in less than 20 trading days on Friday. During the Global Financial Crisis, the same amount of decrease in share value took around 286 days.
But that isn’t the worst drop in the global market. One specific index is going a downward spiral in value, which can suggest the real extent of the imminent crash in the market.
Market investors consider gold as the defensive stock whenever shares drop. During a dramatic sell-off in the stock market and red numbers starts to flash, it usually indicates a widespread fall. When this happens, investors go towards businesses that mine precious metal, especially gold.
However, during the sad decline in the stock market this week, the value of gold also went a downward spiral. The precious metal follows the downward trend of other sectors, which are tumbling in value. It then shows an alarming number of investors and market players trying to withdraw from the share market altogether.
According to Julia Lee, chief investment officer at Burman Invest, the market considers gold as a safe-haven. However, she said that during a real crisis in the market, there is going to be an obvious liquidation.
Ms. Lee added that the same trend happened during the period of the Global Financial Crisis before. She said that when investors start liquidating their assets, they try to dispose of whatever resource they can get their hands on.
Chris Weston, the head of research at the Pepperstone, also said that the gold shares on the decline along with the broader stock market suggest that everything is currently disorganized.
The market considers gold as the proxy for the bond market up until a couple of days ago, according to Mr. Weston. He said that there was an adjustment with the inflation. It means that with the real yield going down, most expect that the value of gold will go up, he stated.
And while the market considers gold as the counter for the bond market, that sentiment is breaking down right now, according to Mr. Weston.
He also said that after the massive sell-out in the stock market in recent weeks, investors started to buy placements in other asset calluses such as properties and cash. However, Mr. Weston stated that those who have erratically left the share market might be missing out on its subsequent, but inevitable upturn.
He also admits that there’s a lot of disdain and panic shown with the market’s dramatic selling at the moment.
However, he said that if there is a snapback in the share market, it wouldn’t be a 1% rally. He stated that it is most likely going to go towards a 10% rally when an upturn happens. And according to him, those investors who are now in the cash market might be very late in going back in time for the party when the stock value goes up. Which, he said, shows the recent sell-offs are very intense.
Mr. Weston added that if investors even blink just once, they might miss the chance and also go down as much as 20%.
On the other hand, the property market might be more promising. House prices usually go much higher following a significant crash in the stock market. A great example was during the 1987 financial crisis when the value of properties went up to around 30% during each of the two subsequent years.
Cameron Kusher, the director of economic research for the REA Group, said that property prices have traditionally gone down during the downturns since the slump in 1991. He said that the property values only went up after the crash in the share market, which is usually the case until now.
Mr. Kushner also said that the national house value index has been going up during the last couple of months. However, he also stated that based on a homebuying website, the search activity for properties is starting to go down, and it suggests that the market will peter out soon as well.
Mr. Kushner added that there might be more investment going towards the property market in the longer term. However, he said that for the short-term, the housing market is most likely going to be not immune to the declining trend in other asset classes.
According to him, the main driver that will drag the property market down along with other assets is people starting to get worried about the slowdown in the economy as a whole. That also includes increasing anxiety over possible unemployment. He said that with the recent health issue and scare, people are less likely and more reluctant to go out to buy new properties.
He added that at the moment, no one wants to be around other groups of people that they don’t know who they have been in contact with or where they previously went.