Mining stocks led Australian shares lower on Tuesday, with global investors cautious about slowing growth in China and nervous that volatility in emerging markets could spread to developed markets.
The benchmark S&P/ASX 200 Index fell 65.8 points, or 1.3 per cent, on Tuesday to 5175.1, despite getting a boost from a survey that indicated domestic business conditions are at a two-and-a-half year high. The broader All Ordinaries Index also dropped 1.3 per cent.
Traders returned from the Australia Day holiday to follow a weak lead from offshore. United States equity markets moved lower on Monday after falling heavily on Friday to cap off their worst week since June 2012. On Tuesday afternoon major markets around Asia were trading higher.
Moves by the central banks of Argentina and Turkey to intervene in currency markets have sparked fears that emerging market volatility could spread to developed markets.
“Because it is part of the Asia-Pacific region, Australia tends to get caught up in investor nervousness about emerging markets,” Fidelity Worldwide Investments Hong Kong-based investment director Catherine Yeung said.
“Negative sentiment about emerging markets could really push the Australian market around over the coming months so the most attractive companies are those with strong balance sheets and free cashflow,” Ms Yeung said. “Over-leveraging in this environment could be risky.”
Equity Trustees chief investment officer George Boubouras said that if worries about emerging markets caused a correction in developed market equities over the quarter “that would be an ideal buying opportunity”.
Mining was the worst-performing sector, down 1.6 per cent as resources giant BHP Billiton lost 2 per cent to $36.31.
Main rival Rio Tinto fell 1.3 per cent to $64.31 with the spot price for iron ore, landed in China, unchanged at $US124.30 a tonne.
Investor sentiment towards the miners has been dampened since the release last week of a disappointing HSBC flash reading of the China Purchasing Manufacturers Index that indicated the manufacturing sector contracted this month.
But Ms Yeung said that while Chinese GDP and credit growth are both slowing the demand outlook from China is still strong.
“A lot of Chinese corporates have told us that even if GDP falls to 6 per cent per annum they can still generate good growth,” she said.
“Demand for Australian iron ore is still growing and the big Australian producers are among the most efficient in the world. Even if the commodity price fell to $US70 per tonne BHP and Rio would still be profitable.”
Junior iron ore miner BC Iron lost 2.5 per cent to $4.99 despite reporting record half-year sales and maintaining its full year guidance. Junior goldminer Perseus Mining fell 7.2 per cent to 38.5¢ despite meeting its quarterly production and costs guidance.
Rare earths miner Lynas Corporation was the worst-performing stock, falling 6.3 per cent at 30¢.
A monthly National Australia Bank survey found that during December business conditions soared to a two-and-a-half year high as sales and profits in some industries rose sharply buoyed by low interest rates, higher share and house prices and a weaker exchange rate.
Electronics retailer JB Hi-Fi was the best-performing stock in the ASX 200, climbing 4.9 per cent to $19.19 after reiterating its full year sales guidance and confirming December-half net profit is expected to rise 10 per cent. Discount retailer The Reject Shop lost another 5.7 per cent after delivering a disappointing half-year trading update on Friday.
The big four banks were all lower. Commonwealth Bank fell 0.8 per cent to $74.13, while Westpac Banking Corporation shed 1.1 per cent to $30.78. ANZ Banking Group lost 1.7 per cent to $30.14, and National Australia Bank dipped 1.5 per cent to $33.33.
Telstra Corporation shed 0.6 per cent at $5.12. The biggest food and liquor sellers were lower despite the Australian Competition and Consumer Commission welcoming a shift in their discounting strategy from petrol to groceries. Woolworths fell 1.4 per cent to $33.52, while Wesfarmers, owner of Coles, lost 1.3 per cent to $42.39.
Oil Search rose 1.5 per cent to $8.26 after beating its fourth quarter production guidance. Australia’s biggest oil producer Woodside Petroleum fell 0.4 per cent to $37.91, as Brent crude oil edged up to $US106.95 a barrel.
Buildings material supplier Boral fell 0.4 per cent to $4.70, after providing guidance ahead of its first half reporting on February 12.
Treasury Wine Estates last priced at $4.55 before entering a trading halt ahead of an expected downgrade.