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The Australian sharemarket was beaten up badly yesterday, with fears of a US recession and the credit crunch continuing to squeeze the country's banks and debt-fuelled former success stories.
Across the Tasman and throughout Asia markets were pounded, with the ASX down almost 3 per cent, Japan's Nikkei average down 4.5 per cent and Hong Kong's Hang Seng Index down 2.95 per cent.
But in New Zealand the NZX-50 ended 0.04 per cent higher at 3584, after initially losing as much as 1.36 per cent early in yesterday's session.
CommSec chief equities economist Craig James said the Australian market was falling into line with other markets around the world, with falls across all Asian bourses, except China.
"It has been taken out of our hands today and it doesn't matter how strong our economy is or what happens with interest rates and company news: it's all due to fears of a recession in the US," he said.
"This is a global market sell-off."
Yesterday's losses in Australia, which wiped almost A$40 billion ($46.7 billion) off the value of the market, added to a string of recent down days on the ASX and mirrored the situation on Wall St on Friday, with banks and insurers bearing the brunt.
US stocks finished lower after weak economic data added to US recession woes and insurer AIG delivered a record loss, sparking fears of further writedowns in the financial sector. The Dow Jones Industrial Average dropped 2.51 per cent, while the Standard & Poor's 500 Index lost 2.71 per cent.
In Australia yesterday, ASB Bank owner Commonwealth Bank fell 5.1 per cent, ANZ Bank 4.9 per cent, Westpac 2.4 per cent and Bank of New Zealand's owner, National Australia Bank, fell 5.8 per cent. Insurance Australia Group fell 5 per cent and AMP was down 8.6 per cent.
"The banks are clearly a bit more closely linked to that whole sub-prime and credit issue, so you'd expect them to come under a little bit more pressure than most other companies, which is what's happening," said Rickey Ward of Tyndall Investments NZ.
It has been reported that the rates at which Australian banks lend to each other have surged by as much as a full percentage point just this month, while bank share prices had fallen nearly 12 per cent over the same period, excluding yesterday's falls. Commentators say this funding pressure is likely to continue should more bad news emerge from the US banking sector.
Meanwhile, tighter credit conditions have taken a big toll on those Australian companies that in recent years have grown swiftly by pursuing aggressive debt-fuelled acquisition strategies.
Shares in Macquarie Bank, the leading investment bank which provided the model for other smaller companies, fell 4.9 per cent yesterday to a year low of A$51.
Allco, whose shares hit a high of A$12.55 in May last year, fell 29 per cent to 62c after three directors including founder David Coe stepped down.
The list of recent casualties also includes MFS Ltd, ABC Learning and property companies Centro and Rubicon.
MFS was a good example of an Australian company which "had an appetite for growth rather than prudency", said Ward. "It tended to acquire businesses on expected cash flows, then gear them up. It got a bit carried away, a bit exuberant, one might say, in a bullish market."
AMP Capital Investors head of equities Guy Elliffe said that with a plethora of highly geared investment companies, the Australian market had some similarities to the New Zealand market in the 1980s. But he believed most listed New Zealand companies were reasonably well insulated from the current credit problems.
Meanwhile, Wall Street's poor performance has seen a fresh wave of risk aversion across other markets, including foreign exchange and the New Zealand dollar has been knocked from its post-float highs. In spite of the ongoing US dollar slide, the kiwi, closing at US79.44c at 5pm yesterday, has lost 3.3 per cent against the greenback since hitting a fresh post-float high of US82.15c on Wednesday.
Elliffe said the kiwi dollar's fall was probably another factor that cushioned the local market from the international market turmoil yesterday.
CRUNCHED
Australian high-flyers in meltdown over debt problems:
* Allco
* MFS
* Centro
* ABC Learning
* Rubicon
- Additional reporting: Agencies
